The Big Chill HSBC

Global

ECONOMICSThe Big ChillAs the euro crisis builds and the US economy stalls... ...the developed world is succumbing to economic permafrost The emerging world looks better, but is not completely immune

Macro Global Economics Q4 2011

By Stephen King, Karen Ward and Madhur Jha

Disclosures and Disclaimer This report must be read with the disclosures and analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it


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The Big Chill As the euro crisis builds and the US economy stalls... ...the developed world is succumbing to economic permafrost The emerging world looks better, but is not completely immune

Permafrost in numbersFollowing a tumultuous third quarter, we can now take a more considered look at the wreckage of the global economic recovery. We had already published updates for some of the worlds biggest economies in our 6 September 2011 report The New Global Cooling. Weve now extended the analysis to include all of the economies covered on a regular basis by the Global Economics team. Coupled with a further downward revision to our forecast for the Eurozone we now expect global growth of 2.5% in 2011 (compared to 3.0% in the last Global Economics Quarterly, 29 June 2011) and 2.6% in 2012 (previously 3.4%). While the numbers remain positive (unlike the collapse post-Lehman in 2009), they are not sufficiently robust to suggest that we have anything

HSBC growth and inflation forecasts GDP World Developed Emerging US UK Eurozone Japan Brazil Russia India China Inflation World Developed Emerging US UK Eurozone Japan Brazil Russia India ChinaSource: HSBC

__________ An uphill struggle___________ 2011 2012 3.0 1.8 6.3 2.5 1.2 2.0 -0.6 4.1 5.5 7.5 8.9 3.4 2.3 6.2 2.9 1.6 1.4 2.4 4.4 4.0 8.1 8.6

______________ Latest _______________ 2011 2012 2.5 1.3 6.0 1.6 1.1 1.6 -0.6 3.5 4.2 7.4 8.9 2.6 1.4 5.9 1.7 1.3 0.6 1.9 4.0 3.0 8.0 8.6

__________ An uphill struggle___________ 2011 2012 3.4 2.5 6.4 2.9 4.3 2.7 -0.1 6.5 9.6 8.0 4.8 2.5 1.5 5.8 1.5 2.2 1.9 -0.3 5.3 8.5 7.7 2.9

______________ Latest _______________ 2011 2012 3.4 2.6 6.3 3.2 4.4 2.7 -0.5 6.6 8.6 8.0 4.8 2.7 1.7 5.8 2.1 2.4 1.8 -0.3 5.8 7.6 7.7 2.9

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approaching a decent recovery in economic activity. Healthy global recoveries typically deliver growth of around 3.5% per year, so were now a long way short. And, as we have persistently argued in recent months, the level of economic activity remains remarkably low. The problems are particularly acute in the developed world, where we now expect growth this year of just 1.3% with a further 1.4% in 2012. These numbers are shockingly weak, held back by a combination of higher commodity prices earlier in the year, the painful process of deleveraging and, with the passage of time, growing political uncertainty. The emerging nations are not doing so badly. We remain positive on the outlook for China and India, even if China has lost some of the momentum it exhibited in 2010. Inflationary pressures appear to be easing following the scares earlier in the year. However, some of the smaller emerging nations particularly some of the Asian exporters are doubtless vulnerable to the deteriorating external environment. Overall, we expect growth of 6.0% in 2011 with a further 5.9% in 2012.

Monetary policy constrained by political deadlockFollowing the shocking financial market developments in the third quarter US sovereign debt downgrade by S&P, a collapse in equity prices, a ratcheting-up of euro strains, a drop in US 10-year Treasury yields below 2% there has been a dramatic shift in attitude from the worlds central bankers. The Federal Reserve has launched Operation Twist, designed to force US long-term interest rates to still-lower levels, the Bank of England is contemplating further quantitative easing, despite inflation being well above target, and the European Central Bank has started to buy Italian and Spanish government debt, a remarkable development given the ECBs hallowed independence. But has monetary policy in all its conventional and unconventional forms begun to lose its magic? There are some obvious problems. The recent loss of economic momentum in the US, for example, shows that last years QE2 was not the panacea. More concerning is that central banks are increasingly being pulled into the political deadlock that is as much an issue in the US as it is in the Eurozone. Fear of Congressional criticism may have persuaded the Fed to adopt Operation Twist rather than QE3, for example. With constraints on monetary policy, weak growth will only make the household and fiscal deleveraging process all the more drawn out and painful.

The euro crisis intensifies with no end in sightDespite all the talk about the EFSF and the ESM, the euro crisis remains unresolved. It is, of course, just one of many manifestations of the growing strain between creditors and debtors in an environment of extremely weak economic growth, but the euro crisis offers its own unique dangers. The US, for example, may have a terrible fiscal position, but its central bank has the capacity to print money to avoid the need for painful austerity, whereas the likes of Italy, Spain and others do not enjoy the same monetary flexibility. The choice is now simple: either the nations within the Eurozone have to come up with some kind of burden-sharing arrangement which takes into account the responsibilities of both creditors and debtors or, instead, the system fragments. As we argued in How to solve the euros problems, (Stephen King and Janet Henry, 30 September 2011), the EFSF and other short-term fixes are no substitute for a muchneeded lasting political arrangement. Fragmentation, meanwhile, could threaten another Great

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Depression, reflecting the sudden need for cross-border holdings of capital to unwind in response to the re-introduction of currency risk.

Investor implicationsEconomic weakness and financial uncertainty are hardly helpful for the value of risky assets. As Fredrik Nerbrand argues in his latest Allocator (The Loopy cycle 30 September 2011), we favour US Treasuries, cash and gold. With increasing correlation and volatility in the markets, we have reduced our portfolio weight in equities and commodities. Justified by valuations, we have maintained some exposure in high yield credit, expecting this asset class to outperform equities in the coming months.

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ContentsKey forecasts Monetary & fiscal policy assumptions The new economic permafrostThe Wizards of Oz Surprise, surprise The toil from oil Why so soon? The ambient noise of deleveraging Final support may be fading Swings and roundabouts The limits of monetary policy Weak growth and political battles Solving the euros problems

6 7 88 8 9 9 11 12 14 14 15 17

Country and Territory sectionsUS Canada Mexico Brazil Argentina Chile Eurozone Germany France Italy Spain UK Norway Sweden Switzerland Hungary Poland Romania Russia Turkey Egypt Saudi Arabia UAE South Africa Japan Australia New Zealand China India Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam 36 38 39 40 42 43 44 46 48 50 52 54 56 57 58 59 60 61 62 64 66 67 68 69 70 72 73 74 76 78 79 80 81 82 83 84 85 86

Global economic forecastsGDP Consumer prices Short rates Long rates Exchange rates vs USD Exchange rate vs EUR & GBP Consumer spending Investment spending Exports Industrial production Wage growth Budget balance Current account

1920 22 24 25 26 27 28 29 30 31 32 33 34

Disclosure appendix Disclaimer

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Key forecastsKey forecasts __________________ GDP_________________ 2009 2010 2011f 2012f World (nominal GDP weights) World (PPP weights) Developed Emerging North America US Canada Latin America Mexico Brazil Argentina Chile Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia UAE South Africa Asia-Pacific Japan Australia New Zealand Asia ex Japan China Asia ex Japan & China Hong Kong India Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam -2.6 -0.7 -4.1 2.0 -3.4 -3.5 -2.8 -3.0 -6.1 -0.6 0.9 -1.7 -4.2 -4.1 -5.1 -2.6 -5.2 -3.7 -4.3 -4.9 -1.6 -5.1 -1.9 -3.4 -4.1 -6.7 1.6 -7.8 -4.8 -14.8 -7.1 4.7 0.8 0.1 -2.9 -1.7 0.4 -6.3 1.4 -2.0 5.9 9.2 2.5 -2.7 7.0 4.6 -1.6 1.1 -0.8 0.3 -1.9 -2.3 5.3 3.9 5.1 2.6 7.6 3.0 3.0 3.2 6.6 5.4 7.5 9.2 5.2 1.7 1.7 3.6 1.4 1.2 -0.1 1.9 1.4 2.1 5.4 2.7 4.3 2.2 1.2 3.8 4.0 8.9 4.2 -1.3 5.1 4.7 4.1 1.7 2.8 6.6 4.0 2.7 1.7 9.1 10.4 7.8 7.0 9.0 6.1 7.2 7.6 14.5 6.2 10.9 7.8 6.8 2.5 3.6 1.3 6.0 1.7 1.6 2.1 4.3 3.7 3.5 8.0 6.4 1.6 1.6 2.8 1.6 0.5 0.6 1.5 1.1 2.5 3.8 1.9 4.0 1.9 1.8 3.7 4.2 5.1 4.0 1.5 1.8 4.3 5.9 3.9 3.0 3.9 -0.6 1.8 2.0 7.3 8.9 5.5 5.0 7.4 6.4 4.8 4.3 5.0 3.4 4.0 3.9 5.8 2.6 3.6 1.4 5.9 1.7 1.7 1.9 4.1 3.9 4.0 5.0 4.5 0.8 0.6 1.0 1.2 -0.2 0.3 1.3 1.3 3.1 0.9 1.4 3.1 1.7 1.5 3.0 3.0 3.0 5.1 2.5 2.7 3.2 4.3 4.2 2.5 5.2 1.9 3.9 3.8 7.4 8.6 6.0 4.5 8.0 6.7 5.0 4.8 5.1 4.1 1.7 5.0 7.0 _______________ Inflation ________________ 2009 2010 2011f 2012f 1.0 2.0 0.0 4.9 -0.3 -0.3 0.3 6.1 5.3 4.9 14.5 0.3 0.6 0.3 0.2 0.1 0.8 -0.2 1.5 2.2 2.2 -0.5 -0.5 7.6 1.0 4.2 3.5 11.7 6.3 16.0 5.6 15.5 3.3 5.1 -0.4 7.2 0.9 -1.3 1.8 2.1 2.9 -0.7 5.6 0.6 12.4 4.8 0.6 3.3 0.6 2.8 -0.9 -0.8 7.0 2.4 3.3 1.4 5.6 1.7 1.6 1.8 7.0 4.2 5.0 23.2 1.4 1.8 1.6 1.2 1.7 1.6 2.0 2.5 3.3 2.4 1.2 0.7 6.0 1.5 4.9 2.6 6.9 8.6 9.4 6.9 11.7 2.7 5.3 1.8 4.3 2.2 -0.7 2.8 2.3 4.8 3.3 5.8 2.3 10.4 5.1 1.7 3.8 2.8 3.0 1.0 3.3 9.2 3.4 4.2 2.6 6.3 3.2 3.2 2.9 7.9 3.5 6.6 23.8 3.2 2.8 2.7 2.4 2.2 2.8 2.7 3.3 4.4 1.5 3.0 0.4 6.3 1.9 3.7 4.1 8.6 5.9 8.6 6.3 11.0 3.6 4.8 2.0 5.1 2.9 -0.5 3.6 4.4 5.6 4.8 6.1 5.0 8.0 5.6 3.2 4.4 4.7 4.4 1.5 4.0 18.4 2.7 3.3 1.7 5.8 2.1 2.1 2.0 8.0 3.6 5.8 23.4 2.9 1.9 1.8 1.7 2.0 2.4 1.2 2.0 2.4 2.2 2.4 0.6 6.2 2.4 3.5 3.1 7.6 7.4 8.0 4.0 8.9 2.4 6.1 2.8 5.9 2.4 -0.3 3.1 3.0 4.6 2.9 5.7 5.3 7.7 6.2 3.0 4.5 3.0 3.6 2.0 3.6 11.2

Notes: Calendar year; except for * which is based upon Egyptian fiscal year (July-June); Global and regional aggregates are calculated using chain nominal GDP (USD) weights Source: Thomson Reuters Datastream and CEIC, HSBC estimates

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Monetary & fiscal policy assumptionsMonetary policy Q1 2011US Targeted Fed funds Japan Overnight call rate Eurozone Repo rate UK Bank rate Canada Overnight rate 0.00 to 0.25 0.05 1.00 0.50 1.00

Q2 20110.00 to 0.25 0.05 1.25 0.50 1.00

Q3 2011f0.00 to 0.25 0.05 1.50 0.50 1.00

Q4 2011f0.00 to 0.25 0.05 1.25 0.50 1.00

Q1 2012f0.00 to 0.25 0.05 1.00 0.50 1.00

Q2 2012f0.00 to 0.25 0.05 1.00 0.50 1.00

Q3 2012f0.00 to 0.25 0.05 1.00 0.50 1.00

Q4 2012f0.00 to 0.25 0.05 1.00 0.50 1.00

Source: Thomson Reuters Datastream, HSBC estimates

Fiscal policy CountryUS

2011The budget deficit for FY2011 will closely match that of FY2010, at least in nominal terms. We expect the FY2011 deficit to come in close to USD1.28trn, barely changed from the USD1.29trn of red ink posted in FY2010. As a percentage of GDP, the deficit should drop to about 8.6% from 9.0%. Tax revenues as a share of GDP are beginning to rise again, while the increase in federal outlays as a share of GDP has begun to taper off. The government has proposed a third supplemental budget of over JPY10trn, which is expected to be passed by late October. This would support construction activity well into 2012. How exactly this will be funded is not clear yet, although part of the funding for reconstruction could be made available through cuts elsewhere, which implies that the boost to growth is not as large as this headline number suggests. The narrowing output gap and tighter fiscal policy should help to narrow the Eurozone public deficit to 4.5% of GDP in 2011 from 6% in 2010. Even without a rise in long-term interest rates, however, this improvement will not be enough to stabilise the debt-to-GDP ratio before 2013. Solid growth should bring the budget deficit down to 1.7% of GDP in 2011. One driving force behind the improvement is the strength of the labour market: Revenues from income tax are rising, while transfer payments are shrinking. We expect the debt to GDP ratio to fall slightly from around 84% to 82.5%. In 2011, we expect the public deficit to narrow to 5.8% of GDP on the back of a recovery in GDP growth and thanks to the end of one-off measures such as the grand loan which narrowed the French public deficit by EUR35bn in 2010. The lack of any meaningful austerity measures however imply that fiscal adjustment will not weigh on GDP growth. Public debt COULD continue to rise to 85.6% in 2011 after reaching 82.1% of GDP in 2010 on our calculations. The Berlusconi government recently passed a EUR54bn package of measures to eliminate the budget deficit in 2013. From 2011 onwards, the primary budget balance (excluding interest payments) should be back in surplus and the public deficit should narrow towards 4% in 2011 from 4.6% in 2010. The March Budget left the broad fiscal plan effectively unchanged, with a decline in the structural deficit of roughly 2ppt of GDP being targeted in FY2011/12. Almost half of this tightening will come via higher taxes. We expect a deficit of 1.9% of GDP in FY201/12, following a deficit of 2.2% of GDP (36bn CAD) last fiscal year. As a result fiscal policy is being held roughly neutral in Canada this year.

2012Temporary tax reductions and federal spending increases set to expire in 2012 could create significant fiscal drag on the economy, equivalent to about 1% of potential GDP. Washington officials may extend (or even increase) some of the tax breaks and spending programmes to prevent a sudden build up of fiscal constraints on the economy. At this point, we expect only a modest decline in the deficit, down to about USD1.13trn from USD1.28trn in FY2011. Tax hikes may be in the pipeline. There are proposals to raise the consumption tax starting in April 2012 by 1ppt to 6%, with an aim to raise it all the way to 10% by 2015. A 1ppt hike could yield around JPY2.5trn in additional annual revenue. However, at this stage, it is uncertain whether this will be implemented. Weak GDP growth is expected to hinder the consolidation efforts of peripheral countries, while the Presidential election in France may also limit the extent to which public spending is reduced. The increase of the effective lending capacity of the EFSF (and later the ESM) could apply upward pressure to bond yields. Still reasonable growth will push the deficit down to 1.4% of GDP in 2012. Despite the improvement in the fiscal situation, the leeway for any fiscal loosening is limited due to the debt brake. Hence, we expect no significant fiscal loosening that could benefit companies or consumers. The recent pressure on European debt markets encouraged the prime minister at end-August to shore up the credibility of the deficit reduction programme from 7.1% of GDP in 2010 to 5.7% in 2011 and 4.5% in 2012 by unveiling tax hikes ahead of time. But the 2012 budget law didnt include any additional austerity measures. Therefore, if GDP growth is lower than the official estimate, the public deficit could come in at 5.6% of GDP in 2012 rather than at 4.5%, which could push the public debt-to-GDP ratio to 88.8%. Ongoing austerity measures should lead to a higher primary surplus but higher interest payments and very weak nominal growth will mean the budget deficit will still amount to about 3.7% of GDP. The pace of fiscal consolidation is not expected to ease significantly in FY2012/13, given that the structural deficit is seen falling by a further 1.7ppt of GDP. Spending cuts, however, are seen providing a clear majority of the tightening. The Canadian government is planning to bring its budget into balance by FY2014/15. However, we anticipate that any steps towards fiscal consolidation over the coming year will be modest. We expect the deficit as a share of GDP to move down to about 1.7% for FY2012/13.

Japan

Eurozone

Germany

France

Italy

UK

Canada

Source: HSBC

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The new economic permafrost Unconventional monetary policies offered hope... ...but have achieved little... ...undermined by the growing political uncertainty stifling economic growth

The Wizards of OzAfter the Great Recession, there has sadly been no Great Recovery. To be fair, no one thought the scars left by the financial crisis would disappear any time soon. Nevertheless, policymakers claimed to know a thing or two about dealing with the aftermath of a financial meltdown. The West, apparently, could not only avoid a Great Depression Mark II but also the multi-year deflation experienced by Japan. A mixture of interest rate cuts, fiscal stimulus and the printing press would surely do the trick. Ben Bernanke, the worlds most powerful central banker, told us so in his now-famous 2002 speech entitled Deflation: Making sure It doesnt happen here1. Yet tricks arent always magical. And sometimes we discover that, behind their impressive exteriors, our policymaking institutions are as intimidating as the Wizard of Oz: their reputations may be big but their powers are sometimes rather more modest.

We have consistently taken the view that the Western world was suffering from Japan-lite problems: weak money supply growth, high levels of debt, lots of deleveraging, structurally weak growth and a rapidly deteriorating fiscal position. Given recent economic developments, perhaps lite should be replaced with heavy.

Surprise, surpriseInflation concerns are now behind us and policymakers are now focusing more or less entirely on growth or the lack of it the increase in financial instability and the mounting risk of recession. Its not difficult to see why.

The speech can be found at http://www.federalreserve.gov/boarddocs/speeches/2002/2002 1121/default.htm

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How can we explain this sudden loss of economic momentum? For a while, it seemed possible to argue that the weakness was mostly the result of temporary global supply disruptions associated with the Japanese earthquake and tsunami. As times gone by, however, this explanation has lost its last remnants of plausibility. Even as Japan has staged a recovery, economic indicators elsewhere have continued to plunge. The latest Philly Fed readings, for example, have in recent months touched the lows seen during the depths of the recession at the beginning of 2009 (Chart 1). Kevin Logan, our Chief US Economist, has devised a range of indicators to track how close the US is getting to recession (see Recession Watch No 2, September 30).1. The Philly Fed survey is back in recession territory

doubling within the space of 12 months. That, of course, hasnt happened.2. The recent rise in oil prices came at a bad moment

%Yr 300 200 100 0 -100 71 74 77 80 83 86 89 92 95 98 01 04 07 10 Real oil priceSource: Thomson Reuters Datastream

% Yr 300 200 100 0 -100

Why so soon?Nevertheless, higher oil prices have played a role. One clue comes from the lack of growth of real household income (Chart 3). The rise in US inflation in the first half of the year had the same effect as a giant tax increase. Real income growth slumped and, as it did so, consumer spending growth came to a grinding halt. Unlike the 1970s, the increase in inflation wasnt followed by an increase in wages and hence real incomes were hit particularly hard. Compared with previous recovery episodes, the result has been a remarkably insipid performance from American consumers (Chart 5). Its a reflection of underlying weaknesses in the labour market, most obviously the persistence of unemployment and the associated worrying rise in the number of long-term unemployed.

Index 60 40 20 0 -20 -40 -60

US

Index 60 40 20 0 -20 -40 -60

68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 Philadelphia Fed Surv eySource: Thomson Reuters Datastream

The toil from oilHigher oil prices have certainly played an important role (Chart 2). We warned in February that this oil price spike couldnt happen at a worse time and suggested that the bigger concern is ultimately recession, not inflation2. Yet we thought that a recession was likely to be triggered only if oil prices continued to rise, perhaps to USD140pb or beyond in effect, a

See The global economic impact of higher oil prices, Stephen King, Karen Ward and Madhur Jha, HSBC Research, 25 February 2011

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3. US real incomes have been hit hard

5. US consumer spending is remarkably weak

% Yr 10 5 0 -5 -10

US

% Yr 10 5 0 -5 -10

Index , T=100 120 115 110 105 100 95 90 T

Consumption

Index , T=100 120 115 110 105 100 95 90

60 65 70 75 80 85 90 95 00 05 10 Real disposable incomeSource: Thomson Reuters Datastream

T+2 T+4 T+6 T+8 T+10 T+12 T+14 T+16 57Q3 60Q2 69Q4 73Q4 01Q1 81Q3 01Q1 07Q4

Source: US Bureau of Economic Analysis, T equals peak of cycle prior to recession

Singling out the weakness of consumer spending, however, is a blinkered approach. Other US domestic metrics have also been very disappointing. Housing investment has been hopeless, non-residential investment has picked up only modestly and government consumption is now a drag on growth, a reflection of ongoing deleveraging at the state and local level. Much the same can be said of the UK. The difficulties facing Western economies are much greater than a simple loss of consumer momentum.4. Even without a double dip, this is the weakest post-war US recovery

6. US government spending is already under pressure

Index , T=100 120 115 110 105 100 95 90 T

Gov ernment Spending

Index , T=100 120 115 110 105 100 95 90



Index , T=100 120 115 110 105 100 95 90 T

GDP

Index , T=100 120 115 110 105 100 95 90

7. US housing investment is frozen at low levels

Index , T=100 180 160 140 120 100 80 60 40 T

Residential inv estment

Index , T=100 180 160 140 120 100 80 60 40





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8. Other areas of investment have picked up but from a very low base

Index , T=100 140 120 100 80 60 T

Non-residential inv estment

Index , T=100 140 120 100 80 60

planet earth. Another way of demonstrating the problem comes from a comparison of Fed funds with the household saving ratio. In times past, declines in Fed funds were typically matched eventually by rising consumer spending helped along by a drop in the saving ratio. As Chart 11 shows, the relationship has now broken down. Ongoing household deleveraging has stifled the benefits stemming from monetary policy. The same was true of Japan at the beginning of the 1990s.10. Theyve only just begun to repay debt



9. Exports have been the only area of normality

US household debt as a share of GDP 100% 80% 60% 40% 20% 0% 51 58 65 72 79 86 93 00 07 100% 80% 60% 40% 20% 0%

Index , T=100 160 140 120 100 80 60 T

Ex ports

Index , T=100 160 140 120 100 80 60


Source: Thomson Reuters Datastream


The ambient noise of deleveragingEconomies typically enjoy some flexibility in dealing with oil price shocks. If credit markets work well, households can borrow to offset a squeeze in real incomes. If theyre working less well, governments can borrow on behalf of households and support real incomes via a tax cut. These sources of flexibility may no longer exist. The ambient noise of deleveraging is now deafening. Even if the supply of credit has improved, continuous weakness in US housing has led households to pay down debt. Yet, as Chart 10 suggests, following the massive increase in borrowing before the financial crisis, there is still a long way to go before households return to

11. The Fed cut rates but household saving went up

14 12 10 8 6 4 2 0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Sav ing rate (LHS)Source: Thomson Reuters Datastream

20 15 10 5 0

Fed funds (RHS)

Deleveraging is no longer confined to households. The Eurozone crisis has already made that clear. Nations are under pressure either from markets or from political forces to get a grip on their fiscal arithmetic.

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As a result, since the last Global Economics Quarterly we have taken an axe to our forecasts. We now expect growth in 2012 of just 1.7% in the US, 1.3% in the UK and a dismal 0.6% for the Eurozone.

Yet while the renewed acceleration in growth was welcome, the associated pick-up in inflation bringing with it rising income inequality and the threat of social instability was not. Policy across the emerging world has been systematically tightened over the past 18 months, a mixture of conventional rate increases and unconventional quantitative tightening. So whereas countries in the developed world are now desperately seeking growth, nations in the emerging world were, until recently, much more worried about inflation.12. The emerging contribution to US trade has been on the rise

Final support may be fadingThe US economic performance could have been a lot worse had exports done as badly as domestic demand. Relative to history, however, US export growth has been perfectly reasonable (chart 9), reflecting most obviously the rising importance of the emerging world. Indeed, the strength of emerging market activity has provided vital support: emerging economies are now bigger than they used to be, theyve been expanding very quickly (in some cases, too quickly) and, in recent times, have become bigger contributors to US export growth than the nations of the developed world (Charts 12 and 13). And the story is not just restricted to the US. German exports in recent years have expanded rapidly thanks mainly to the stellar growth of demand for German products in Asia and Latin America (Chart 14). There are plenty of structural explanations underlying the strength of the emerging markets expansion. Weve discussed many of them elsewhere (see, for example, Karen Wards The World in 2050 (4 January 2011) or Stephen Kings The Southern Silk Road (6 June 2011)). But one key reason why emerging nations have offered support recently is the extent to which their policies have been very growth friendly. Weve already mentioned the upgrades to forecasts in China as the misery of 2008 gave way to the renewed optimism of 2009, but plenty of other emerging economies had a similar experience.

% 30 25 20 15 10 5 0 -5 -10 -15 -20

Contributions to US ex port grow th

% 30 25 20 15 10 5 0 -5 -10 -15 -20 09

82 85 88 91 94 97 EmergingSource: IMF Direction of Trade Statistics

00

03

06

Adv anced

13. The US has hugely benefited from strong emerging demand

Index , 2007 = 100 250 200 150 100 50 0 07 Latam 08

US ex ports

Index , 2007 = 100 250 200 150 100 50 0

09

10

11 Asia

Western Europe

Source: IMF Direction of Trade Statistics

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14. Germanys experience has been similar

Index , 2007 = 100 250 200 150 100 50 0 07 08

Germany ex ports

Index , 2007 = 100 250 200 150 100 50 0

Brazil now feels it was a little heavy handed and has started to reverse some of the tightening, cutting rates by 50bp in August.15. Some of the smaller EM economies are more exposed to the troubles in the developed world Trade vulnerability % exports to DM ( 2010) Latin America Mexico Brazil Argentina Chile EMEA Hungary Poland Russia Turkey Ukraine Egypt South Africa Asia China Hong Kong India Indonesia Malaysia Philippines Singapore South Korea Thailand Vietnam Financial vulnerability* Current account +FDI %GDP

09

10 Latam Asia

11

USA Western EuropeSource: IMF Direction of Trade Statistics

90.2 41.1 28.4 50.8 73.1 78.8 53.9 50.1 22.4 42.3 54.7 70.0 34.7 44.9 60.8 60.6 75.7 45.2 41.5 54.6 68.5

0.9 -0.6 1.1 4.5 4.5 1.1 -9.0 -0.4 -0.2 -2.7 4.4 6.4 -0.9 2.0 11.2 2.1 24.1 1.0 3.6 5.9

Therefore, despite some fairly hefty downward revisions to our growth forecasts in the developed world, there have been few changes to our forecasts for the emerging world. Indeed, our forecasts for Chinese growth this year and next remain rock solid at 8.9% and 8.6%, respectively. Similarly, we are still forecasting more than 7% growth in India over the coming two years. India has always been a more domestically driven economy, but the same is increasingly true for China. Indeed over the past year net exports havent made any contribution to the stunning 9% growth its achieved. Its true that some of the strength of domestic demand is spillover effects from the almighty fiscal stimulus introduced in 2008. There are more than a hundred thousand infrastructure projects that are work in progress, which is helping fixed-asset investment run at close to 25% annual growth. But strong wage growth is also fuelling doubledigit consumption growth. As the Asian super powers steam ahead with infrastructure driven growth this continues to support the commodity exporters. Weve edged down our forecast for Brazil slightly but this is more a reflection of the domestic monetary tightening that has occurred over the course of the year through the interest and exchange rate, and macroprudential measures. With the Eurozone crisis escalating it appears the central bank of

* This proxy for financial vulnerability shows how susceptible an economys funding gap is to portfolio flows Source: IMF Direction of Trade Statistics, HSBC

Some of the smaller emerging market economies are not quite so fortunate. Table 15 shows a selection of the EM countries we cover and their dependence on developed world demand for exports. Clearly some of the smaller Asian economies are more exposed to the world trade cycle and fluctuations in demand in the West. We have taken down our forecasts a little more significantly for Hong Kong, Taiwan and Singapore. It is somewhat harder to gauge the vulnerability of each country to potential financial contagion. Equity prices have also fallen sharply on emerging bourses, which will have some impact on consumer sentiment, but the wealth effect from stocks is small in emerging markets. It is the

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potential for liquidity flight and banking sector troubles that is of more concern. In certain parts of EM, 2008 saw parent financial institutions returning funds from foreign subsidiaries to bolster domestic balance sheets, starving the local markets of credit. For others the collapse in trading finance as counterparty risk soared was the main issue. This kind of liquidity squeeze seems less of an issue this time around, due to the generous provision of central bank liquidity in the developed world and the ample level of reserves at the hands of local central banks. While our base case scenario continues to be one of healthy GDP growth for EM, we highlight two risks. First, a sudden contraction in commodity prices would be a huge restraint on growth in the Middle East, LatAm and Russia where public and private cash flows are dependent on commodity revenues. Second, the flight to safety has led to declines in some EM currencies relative to the dollar and euro, which is a problem for those countries with large amounts of financial liabilities denominated in foreign currencies. Central parts of Central and Eastern Europe look particularly vulnerable (see Emerging CEEMEA Economics: the impact of Eurozone contagion, Murat Ulgen, 12 August 2011). Overall, the emerging world looks less vulnerable to the fallout from problems in the developed world today than it did in 2008. Of course, this does depend on how bad things get there. We stress that the key difference for us, as we put together our forecasts for the EM countries, is that, in stark contrast to the developed world, policymakers still have fiscal and monetary tools left in their armoury should their economies need a boost. As it stands, we dont think theyll need to use them. Indeed, particularly in Asia, we think policymakers should keep their eye on inflation which for now is proving rather sticky. But if the developed world fails to overcome its current

troubles, EM policymakers still have some of their powder dry. That said, Beijing may be hesitant to unleash the magnitude of stimulus it produced back in 2008 and 2009. Again via the impact on global commodity prices, this produced a little more inflation than was comfortable. Like the Federal Reserve, Chinese policymakers may be feeling some limits on their policy choice. Some additional stimulus may be offered in the light of a renewed meltdown elsewhere but the policydriven boom of the past couple of years will not be repeated any time soon once bitten, twice shy. As a result, if things do get ugly in the developed world, its difficult to see how emerging nations can ride to the global rescue once more.

Swings and roundaboutsThe resulting tilt in global economic growth has certainly helped boost Western exports, but the cost has been much higher commodity prices. Growth in the emerging world is much more commodity intensive than elsewhere, so any tilt in global growth towards China, India and others inevitably pushes up the price of energy, food, metals and other raw materials. And its those price rises that have led to higher Western inflation and, hence, lower real wages. Looser monetary conditions stimulated the wrong parts of the world economy and, via higher inflation, squeezed real incomes in the West, undermining the pace of recovery.

The limits of monetary policyMr Bernankes 2002 speech made no real mention of the dangers of international monetary leakage. Much of the speech was internally focused, as if the rest of the world didnt really exist. And where there was reference to the international situation, it was primarily a story about monetary helicopters and the US dollar:

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Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, its worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from US history is Franklin Roosevelts 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the US deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelts devaluation.

Western world is genuinely worse off relative to earlier expectations (Table 16).16. Where we were, where we are and where we thought wed be Consensus forecast for 2011 made in 2008 Actual Q1 % change in 2011 actual since Q1 2008 ppts difference between actual and forecasts

US Canada Japan UK Germany France Italy

107.8 107.8 105.1 106.1 105.3 106.0 104.1

99.7 102.3 94.4 95.9 99.8 99.1 94.9

-0.3 2.3 -5.6 -4.1 -0.2 -0.9 -5.1

-8.1 -5.5 -10.7 -10.2 -5.5 -6.9 -9.1

* Index, 2008 =100 Source: Thomson Reuters Datastream, Consensus Forecasts

Weak growth and political battlesIn truth, we have reached the point where central bankers begin to run out of power. Their potency is fading because any likely resolution to the developed worlds economic difficulties will involve burden-sharing across different groups in society. And that must be a matter not of monetary technique but, instead, of political choice. To see why, consider how economies have behaved since the onset of the crisis. GDP is, at best, no higher than it was at the beginning of 2008 and, in many countries, still quite a lot lower. The cumulative performance has been far worse than was anticipated pre-crisis. Indeed, relative to levels projected for 2011 by the forecasting consensus pre-crisis, GDP is massively down. For all the stimulus on offer, the

This, however, creates a problem. Until 2008, asset values and levels of debt were determined by optimistic expectations about future growth which, in hindsight, have proved wide of the mark. Even if a second recession is avoided, the evidence now strongly suggests that previous estimates of trend economic growth were too high. In Chart 17, weve sketched out the implications for a typical debt-ridden Western economy: its consistent with the idea that, recession or not, weve shifted to a permanently lower path for GDP both a lower level and a lower growth rate. That, in turn, means that the collective financial claims on future income are probably too high, as they have been based on a previous, more optimistic view of future levels of economic activity. It also means that those who took on debts in times past, fully expecting income gains to allow them to repay their creditors, are now in trouble. The level of economic activity both current and future appears not to be high enough to allow all financial claims to be settled.

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17. Different paths for the economy: the gap between expectations and reality

18. Does the need for votes lead to political inaction?

GDP

US Canada Japan UK Germany France Italy

Time 3% grow th low er lev el, 3% grow th low er lev el, low er structural grow thSource: HSBC

Spain India Brazil Russia

6 November 2012 presidential elections General elections held in May 2011, next in 2016 Parliamentary elections are scheduled for 30 August 2013 Under coalition agreement general elections to be held on 7 May 2015 4/18 September 2011 Mecklenburg-Vorpommern state elections; under regular circumstances federal elections will be held between 1 September and 27 October 2013 22 April 2012 (6 May 2012 - second round) presidential elections April 2013 parliamentary elections, May 2013 presidential elections 20 November 2011 general elections Presidential elections planned for July 2012, May 2014 for parliamentary elections General elections held in October 2010, next scheduled for October 2014 March 2012 presidential elections

Any plausible resolution to the current financial crisis must involve burden-sharing on a scale not seen since the 1930s. Unemployment, defaults, inflation, currency crises, stock market collapses, austerity: all these are consistent with the new, lower, level of economic activity and are not unique to any one country or part of the world. Our political leaders, however, are in denial. Like Charles Dickens Mr Micawber, they hope something will turn up. Yet, the longer they leave the hard decisions reflecting in part the tyranny of the electoral timetable the worse things will become (Table 18). With indecision comes uncertainty.

Source: HSBC, Bloomberg

We used to think political deadlock was a problem unique to Japan. As Ben Bernanke put it in 2002: Japans economy faces some significant barriers to growth besides deflation, including massive financial problems in the banking and corporate sectors and a large overhang of government debt. Plausibly, private-sector financial problems have muted the effects of the monetary policies that have been tried in Japan, even as the heavy overhang of government debt has made Japanese policymakers more reluctant to use aggressive fiscal policies...Fortunately, the US economy does not share these problems, at least not to anything like the same degree, suggesting that anti-deflationary monetary and fiscal policies would be more potent here than they have been in Japan. ...I believe that...the failure to end deflation in Japan does not necessarily reflect any technical infeasibility of achieving that goal. Rather, it is a byproduct of a longstanding political debate about how best to address Japans overall economic problems...both restoring banks and corporations to solvency and implementing significant structural change are necessary for Japans long-run economic health. But in the short run, comprehensive economic reform will

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likely impose large costs on many, for example, in the form of unemployment or bankruptcy. As a natural result, politicians, economists, businesspeople, and the general public in Japan have sharply disagreed about competing proposals for reform. In the resulting political deadlock, strong policy actions are discouraged, and cooperation among policymakers is difficult to achieve. Ben Bernanke was right about Japan but, unfortunately, his analysis also now extends to the US and parts of Europe. With Democrats and Republicans unable to agree on how to tackle the US fiscal deficit and with nation states in the Eurozone unable to offer solace on the future of the euro, investors naturally head for the exit, unsure how they may be individually liable for sorting out the crisis.

Without the necessary political legitimacy, the euro could eventually break up. To do so would threaten another Great Depression. Disentangling the cross-border assets and liabilities which have risen so rapidly since the euros inception in 1999 would be a Herculean task that might fatally damage the fabric of the European financial system. Uncertainty over the value of assets and liabilities would soar, reflecting both the reintroduction of national currencies and sudden legal ambiguity. Doubts over the viability of both government finances and financial institutions would increase. Hyperinflation in parts of the periphery could become a reality while, in the core, massive currency revaluations alongside impaired balance sheets could threaten economic meltdown. Solving the Eurozones problems will be no easy task but, ultimately, countries need to accept collective responsibility for what can be regarded as collective systemic failures. While the ECBs purchases of peripheral debt and the creation of the EFSF are extremely helpful first steps, they cannot possibly be regarded as anything more than a small part of any lasting solution. As indicated at the IMF/World Bank meetings in Washington in September 2011, the EFSF will almost certainly have to increase in size. Action needs to be taken not just on sovereign debt but also on bank recapitalisation. And, if Greece is eventually to have a comprehensive restructuring, firewalls need to be created to limit the fallout elsewhere within the Eurozone. But theres more. The measures announced so far and the measures likely to materialise in coming months lack any proper political legitimacy. The cross-border battle between the interests of creditors and debtors partly a reflection of ongoing Western economic permafrost suggests that further political upheavals are very likely.

Solving the euros problems19. Fiscal austerity wont deliver debt sustainability if it merely leads to recession

Index 65 55 45 35 25 05 06 GreeceSource: Markit, HSBC

Headline Manufacturing PMI

Index 65 55 45 35 25

07

08 Ireland

09

10 Italy

11 Spain

Problems within the euro area are, of course, particularly challenging. Imposing austerity on the peripheral nations cannot, on its own, solve the euros problems. Indeed, so far it seems that greater fiscal tightening is merely coinciding with deeper recession (Chart 19). We now need collective responsibility, involving burden sharing between creditors and debtors and, in time, a move towards a minor version of fiscal union.

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One way to avoid this is for Eurozone member states to sign up to a fiscal club, a modest act of fiscal union. That isnt going to happen overnight. As with the creation of the euro, however, it may be possible for politicians to agree on a timetable for the creation of such a club. By doing so, investors would know that politicians were prepared to fix the Eurozones problems and voters would be able to choose whether to sign up for the club or otherwise opt out (at considerable cost). Its not without its risks, but a timetable of this kind would at least offer the euro some much needed democratic legitimacy.

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Global economic forecasts

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GDPAnnual % Year World (Nominal GDP weights) World (PPP Weights) Developed Emerging North America US Canada Latin America Mexico Brazil Argentina Chile Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway*** Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia UAE* South Africa Asia-Pacific Japan Australia New Zealand Asia ex Japan China Asia ex Japan & China Hong Kong India** Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam 2003 2.5 3.9 1.8 5.7 2.4 2.5 1.9 2.1 1.3 1.1 8.8 4.0 1.1 0.8 -0.4 0.9 0.1 3.1 2.1 2.8 1.0 2.5 -0.2 5.7 3.6 3.9 3.8 7.3 5.8 9.5 1.4 3.2 2.3 7.7 11.9 3.0 4.0 1.4 3.3 4.2 7.2 10.0 5.0 3.0 7.3 4.8 5.4 4.9 4.6 2.8 3.7 7.0 7.3 2004 3.7 5.0 2.9 7.0 3.5 3.6 3.1 5.3 4.1 5.7 9.0 6.0 2.2 2.0 0.7 2.3 1.4 3.3 3.0 3.0 4.1 3.7 2.5 6.4 4.5 4.5 5.4 7.2 9.4 12.1 8.2 4.1 5.2 5.3 7.4 4.6 5.0 2.7 3.8 4.5 7.9 10.1 6.2 8.5 6.7 5.0 7.3 6.4 9.2 4.6 6.2 6.4 7.8 2005 3.3 4.7 2.4 6.7 3.1 3.1 3.0 3.9 3.2 3.2 9.2 5.6 2.0 1.8 0.8 1.9 0.8 3.6 2.5 2.1 4.3 3.2 2.6 5.9 6.3 3.1 3.6 6.4 8.4 3.0 4.3 4.5 5.1 5.6 10.5 5.3 4.7 1.9 3.1 3.3 8.0 10.2 6.1 7.1 8.5 5.7 5.3 5.0 7.4 4.0 4.7 4.7 8.4 2006 3.8 5.4 2.8 7.7 2.7 2.7 2.8 5.0 5.2 4.0 8.5 4.6 3.2 3.2 3.9 2.7 2.1 4.0 3.3 2.8 4.5 4.6 3.6 6.5 6.8 3.7 6.2 8.2 6.9 7.4 7.8 6.8 5.3 3.2 9.4 5.6 5.3 2.0 2.6 1.0 9.1 11.6 7.0 7.0 9.8 5.5 5.8 5.3 8.7 5.2 5.4 5.1 8.2 2007 3.7 5.6 2.4 8.3 2.0 1.9 2.2 5.0 3.3 6.1 8.7 4.6 2.9 2.8 3.4 2.2 1.4 3.6 3.0 2.7 5.4 3.4 3.6 5.9 6.1 0.8 6.8 8.5 4.7 7.6 6.2 7.1 5.2 2.0 7.6 5.6 6.3 2.4 4.6 2.8 10.4 14.2 7.1 6.4 9.5 6.3 6.5 7.1 8.8 5.1 6.0 5.0 8.5 2008 1.3 2.9 0.0 5.6 0.0 0.0 0.7 3.4 1.2 5.2 6.8 3.7 0.2 0.2 0.8 -0.2 -1.3 0.9 0.2 -0.1 1.6 -0.8 2.1 4.0 2.5 0.9 5.2 5.2 0.7 2.3 7.7 7.2 4.0 4.2 7.0 3.6 3.1 -1.2 2.6 -0.1 7.0 9.6 4.6 2.3 7.5 6.0 4.8 3.5 1.5 2.3 0.7 2.5 6.3 2009 -2.6 -0.7 -4.1 2.0 -3.4 -3.5 -2.8 -3.0 -6.1 -0.6 0.9 -1.7 -4.2 -4.1 -5.1 -2.6 -5.2 -3.7 -4.3 -4.9 -1.6 -5.1 -1.9 -3.4 -4.1 -6.7 1.6 -7.8 -4.8 -14.8 -7.1 4.7 0.8 0.1 -2.9 -1.7 0.4 -6.3 1.4 -2.0 5.9 9.2 2.5 -2.7 7.0 4.6 -1.6 1.1 -0.8 0.3 -1.9 -2.3 5.3 2010 3.9 5.1 2.6 7.6 3.0 3.0 3.2 6.6 5.4 7.5 9.2 5.2 1.7 1.7 3.6 1.4 1.2 -0.1 1.9 1.4 2.1 5.4 2.7 4.3 2.2 1.2 3.8 4.0 8.9 4.2 -1.3 5.1 4.7 4.1 1.7 2.8 6.6 4.0 2.7 1.7 9.1 10.4 7.8 7.0 9.0 6.1 7.2 7.6 14.5 6.2 10.9 7.8 6.8 2011f 2.5 3.6 1.3 6.0 1.7 1.6 2.1 4.3 3.7 3.5 8.0 6.4 1.6 1.6 2.8 1.6 0.5 0.6 1.5 1.1 2.5 3.8 1.9 4.0 1.9 1.8 3.7 4.2 5.1 4.0 1.5 1.8 4.3 5.9 3.9 3.0 3.9 -0.6 1.8 2.0 7.3 8.9 5.5 5.0 7.4 6.4 4.8 4.3 5.0 3.4 4.0 3.9 5.8 2012f 2.6 3.6 1.4 5.9 1.7 1.7 1.9 4.1 3.9 4.0 5.0 4.5 0.8 0.6 1.0 1.2 -0.2 0.3 1.3 1.3 3.1 0.9 1.4 3.1 1.7 1.5 3.0 3.0 3.0 5.1 2.5 2.7 3.2 4.3 4.2 2.5 5.2 1.9 3.9 3.8 7.4 8.6 6.0 4.5 8.0 6.7 5.0 4.8 5.1 4.1 1.7 5.0 7.0

Notes: * = based upon Egyptian fiscal year (July-June); ** = calendar year; *** = mainland. We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC

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Quarterly % Quarter & % Year North America US* Q3 10 Q4 10 Q1 11 Q2 11 Q3 11f Q4 11f Q1 12f Q2 12f Q3 12f Q4 12f

Canada*Latin America Mexico

% Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Quarter % Year % Quarter % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year

2.5 3.5 2.5 3.8 0.7 5.1 0.4 6.7 0.7 8.6 2.3 6.9 0.4 2.0 0.8 4.0 0.4 1.6 0.3 1.4 0.0 0.2 0.6 2.5 2.8 6.8 2.8 2.7 1.7 4.2 3.1 5.2 3.6 -2.2 5.2 2.7 1.3 5.0 0.3 2.7 1.6 9.6 6.9 8.9 5.8 5.3 7.3 10.5 4.4 10.7 6.6 7.4

2.3 3.1 3.1 3.3 1.1 4.4 0.7 5.0 2.5 9.2 1.1 5.8 0.3 2.0 0.5 3.8 0.3 1.4 0.1 1.5 0.2 0.6 -0.5 1.5 2.2 7.2 2.9 2.6 1.9 4.5 4.5 9.2 3.3 -0.6 6.4 3.8 -0.9 2.2 0.8 2.7 1.1 9.8 6.4 8.3 6.9 4.8 6.1 12.0 4.7 7.1 3.8 7.2

0.4 2.2 3.6 2.9 0.6 4.6 1.2 4.2 2.8 9.9 1.6 10.0 0.8 2.5 1.3 4.6 0.9 2.2 0.1 1.0 0.4 0.9 0.5 1.6 1.9 6.1 2.6 2.8 2.5 4.4 4.1 11.0 5.3 1.7 6.9 3.5 -1.3 -1.0 -0.9 1.0 1.4 9.7 7.5 7.8 6.5 4.9 4.6 9.3 4.2 6.2 3.2 5.4

1.3 1.6 -0.4 2.2 1.1 3.3 0.8 3.1 1.4 7.6 1.4 6.8 0.2 1.7 0.1 2.8 0.0 1.7 0.3 0.8 0.2 0.7 0.3 0.9 2.7 4.9 2.3 2.2 1.5 4.3 3.4 6.0 4.0 1.4 3.4 3.0 -0.1 -1.1 1.2 1.4 1.7 9.5 5.1 7.7 6.5 4.0 3.4 0.9 3.4 5.0 2.6 5.7

2.2 1.6 2.0 2.0 1.0 3.6 0.8 3.4 1.1 8.0 0.7 4.3 0.1 1.4 0.4 2.3 0.3 1.6 -0.2 0.3 -0.3 0.4 0.5 0.6 2.4 2.8 1.6 1.4 1.6 3.0 5.0 3.1 4.0 1.5 3.3 2.4 0.9 -0.1 1.1 2.2 2.4 8.7 4.4 6.0 6.4 5.6 4.0 5.4 2.4 3.3 4.9 6.1

0.7 1.2 0.7 1.5 0.8 3.4 0.6 3.2 1.2 6.6 1.1 4.9 -0.1 1.1 -0.2 1.6 -0.1 1.1 -0.2 0.0 -0.1 0.2 0.2 1.3 2.5 1.4 1.1 1.2 1.4 3.0 4.1 0.4 4.0 1.2 3.5 3.0 -0.8 0.0 1.1 2.5 2.6 8.6 3.2 8.2 6.2 4.7 5.3 4.6 3.5 2.0 4.9 5.8

1.7 1.5 2.1 1.1 1.0 4.0 1.1 3.4 1.4 5.1 1.3 4.4 0.1 0.4 0.2 0.4 0.3 0.5 -0.2 -0.2 0.1 -0.1 0.2 1.1 2.9 0.6 0.8 1.4 1.4 2.6 3.5 0.1 5.0 1.9 2.8 2.8 -0.9 2.1 0.9 4.3 2.8 8.4 2.3 7.9 6.3 4.0 5.5 0.6 2.8 -1.3 3.5 6.5

2.1 1.7 2.4 1.8 0.6 4.0 1.1 3.8 1.2 4.9 1.6 3.5 0.2 0.4 0.4 0.8 0.6 1.2 0.1 -0.4 0.2 -0.1 0.2 1.1 2.8 0.2 0.9 1.5 1.6 3.0 3.0 1.9 5.0 2.1 3.4 2.2 -0.8 2.3 0.9 4.0 3.8 8.5 2.5 7.7 6.7 3.8 5.9 4.6 3.4 -0.2 5.3 6.5

2.0 1.6 2.9 2.0 1.2 3.6 1.2 4.2 1.2 5.0 1.4 5.0 0.3 0.6 0.5 0.9 0.5 1.3 0.1 -0.2 0.2 0.4 0.7 1.4 3.2 1.0 1.7 1.8 1.3 3.2 3.0 4.2 5.0 2.8 3.2 2.3 1.4 2.3 0.9 3.8 4.2 8.6 5.3 8.1 6.9 5.4 6.0 7.2 5.5 3.0 5.5 7.4

2.4 2.1 2.9 2.6 1.2 3.9 1.0 4.5 1.0 4.8 1.4 5.2 0.4 1.1 0.6 1.8 0.6 2.0 0.2 0.2 0.3 0.8 0.3 1.5 3.6 1.9 2.2 2.2 1.5 3.1 2.5 5.8 5.0 3.0 3.2 2.5 0.8 1.1 1.0 3.7 4.5 8.7 7.5 8.2 6.8 6.6 6.0 8.0 4.7 5.0 5.5 7.5

Brazil Argentina ChileWestern Europe Eurozone

Germany France Italy SpainOther Western Europe UK

Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Israel South Africa Asia-Pacific Japan Australia New Zealand China Hong Kong India Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam

Note: * = quarter-on-quarter data has been annualised Source: HSBC

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Consumer pricesAnnual % Year World Developed Emerging North America US Canada Latin America Mexico Brazil Argentina* Chile Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine* Romania Egypt** Israel* Saudi Arabia UAE South Africa Asia-Pacific Japan Australia New Zealand Asia ex Japan China Asia ex Japan & China Hong Kong India* Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam 2003 2.4 1.8 4.9 2.3 2.3 2.8 8.9 4.5 14.7 13.4 2.8 2.0 2.1 1.0 2.2 2.8 3.1 1.5 1.4 2.5 1.9 0.6 7.6 0.0 4.7 0.8 13.7 25.3 5.2 4.5 4.0 0.7 0.6 3.1 5.4 1.0 -0.2 2.8 1.8 2.2 1.2 3.1 -2.6 3.8 6.8 1.1 3.5 0.5 3.5 -0.3 1.8 3.2 2004 2.5 1.9 4.6 2.6 2.7 1.9 5.2 4.7 6.6 4.4 1.1 1.9 2.2 1.8 2.3 2.3 3.1 1.1 1.3 0.5 0.4 0.8 6.1 2.8 6.8 3.5 10.9 8.6 9.0 11.9 14.3 -0.4 0.5 7.0 1.4 1.8 -0.0 2.3 2.3 3.7 3.9 3.6 -0.4 3.9 6.1 1.4 6.0 1.7 3.6 1.6 2.8 7.7 2005 2.7 2.3 4.5 3.3 3.4 2.2 5.6 4.0 6.9 9.6 3.1 2.1 2.2 1.9 1.9 2.2 3.4 1.7 2.0 1.5 0.5 1.2 6.5 1.9 3.6 2.1 12.7 8.2 10.3 9.0 8.9 1.3 0.4 9.0 3.4 1.5 -0.3 2.7 3.0 3.2 1.8 4.3 0.9 4.2 10.5 3.0 7.7 0.5 2.8 2.3 4.5 8.3 2006 2.8 2.3 4.5 3.1 3.2 2.0 4.6 3.6 4.2 10.9 3.4 2.2 2.2 1.8 1.9 2.2 3.6 2.0 2.3 2.3 1.4 1.1 6.2 2.6 3.9 1.0 9.7 9.6 9.1 6.6 4.2 2.1 2.3 10.5 4.6 2.0 0.2 3.5 3.4 3.7 1.5 5.4 2.0 6.8 13.1 3.6 6.3 1.0 2.2 0.6 4.6 7.4 2007 2.8 2.1 5.3 2.8 2.9 2.1 4.8 4.0 3.6 12.7 4.4 2.1 2.1 2.3 1.6 2.0 2.8 2.0 2.3 0.7 2.2 0.7 7.1 2.8 8.0 2.5 9.0 8.8 12.8 4.8 11.0 0.5 4.1 11.1 7.1 2.2 0.1 2.3 2.4 4.5 4.8 4.2 2.0 6.2 6.7 2.0 2.8 2.1 2.5 1.8 2.2 8.3 2008 4.3 3.3 8.0 3.7 3.8 2.4 7.7 5.1 5.7 24.8 8.7 3.3 3.3 2.7 3.2 3.5 4.1 3.5 3.6 3.8 3.4 2.4 10.5 6.4 6.1 4.2 14.1 10.4 25.2 7.9 11.6 4.6 9.9 6.5 11.0 4.1 1.4 4.4 4.0 6.8 5.9 7.4 4.3 9.1 9.8 5.4 9.3 6.6 4.7 3.5 5.5 23.1 2009 1.0 0.0 4.9 -0.3 -0.3 0.3 6.1 5.3 4.9 14.5 0.3 0.6 0.3 0.2 0.1 0.8 -0.2 1.5 2.2 2.2 -0.5 -0.5 7.6 1.0 4.2 3.5 11.7 6.3 16.0 5.6 15.5 3.3 5.1 -0.4 7.2 0.9 -1.3 1.8 2.1 2.9 -0.7 5.6 0.6 12.4 4.8 0.6 3.3 0.6 2.8 -0.9 -0.8 7.0 2010 2.4 1.4 5.6 1.7 1.6 1.8 7.0 4.2 5.0 23.2 1.4 1.8 1.6 1.2 1.7 1.6 2.0 2.5 3.3 2.4 1.2 0.7 6.0 1.5 4.9 2.6 6.9 8.6 9.4 6.9 11.7 2.7 5.3 1.8 4.3 2.2 -0.7 2.8 2.3 4.8 3.3 5.8 2.3 10.4 5.1 1.7 3.8 2.8 3.0 1.0 3.3 9.2 2011f 3.4 2.6 6.3 3.2 3.2 2.9 7.9 3.5 6.6 23.8 3.2 2.8 2.7 2.4 2.2 2.8 2.7 3.3 4.4 1.5 3.0 0.4 6.3 1.9 3.7 4.1 8.6 5.9 8.6 6.3 11.0 3.6 4.8 2.0 5.1 2.9 -0.5 3.6 4.4 5.6 4.8 6.1 5.0 8.0 5.6 3.2 4.4 4.7 4.4 1.5 4.0 18.4 2012f 2.7 1.7 5.8 2.1 2.1 2.0 8.0 3.6 5.8 23.4 2.9 1.9 1.8 1.7 2.0 2.4 1.2 2.0 2.4 2.2 2.4 0.6 6.2 2.4 3.5 3.1 7.6 7.4 8.0 4.0 8.9 2.4 6.1 2.8 5.9 2.4 -0.3 3.1 3.0 4.6 2.9 5.7 5.3 7.7 6.2 3.0 4.5 3.0 3.6 2.0 3.6 11.2

Note: * = end-year values; ** = based upon Egyptian fiscal year (July-June). We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC

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Quarterly % Quarter North America US Canada Latin America Mexico Brazil Argentina Chile Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt Israel South Africa Asia-Pacific Japan Australia New Zealand China India Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand VietnamSource: HSBC

Q3 10

Q4 10

Q1 11

Q2 11f

Q3 11f

Q4 11f

Q1 12f

Q2 12f

Q3 12f

Q4 12f

1.2 1.8 3.7 4.6 23.4 0.01.7 1.2 1.8 1.7 2.0

1.3 2.3 4.2 5.6 25.0 1.42.0 1.6 1.9 2.0 2.5

2.1 2.6 3.5 6.1 23.4 2.22.5 2.1 2.0 2.3 3.2

3.4 3.4 3.3 6.6 23.2 2.72.8 2.5 2.2 2.9 3.3

3.8 2.9 3.4 7.1 24.1 2.92.7 2.6 2.3 2.6 2.5

3.6 2.7 3.4 6.6 24.2 3.22.8 2.2 2.4 3.5 1.6

2.8 1.2 3.5 6.2 24.2 3.32.2 2.0 2.2 3.1 1.2

2.1 1.5 4.1 5.6 24.1 3.11.8 1.6 1.9 2.5 0.6

1.8 2.0 4.2 5.7 23.9 3.01.8 1.7 1.9 2.2 1.4

1.7 2.1 3.9 5.6 22.2 2.91.6 1.6 1.9 1.8 1.8

4.7 1.9 1.1 0.3 1.9 3.8 2.2 7.0 8.4 8.5 7.5 10.6 1.8 3.5 -1.0 2.9 1.5 3.3 10.3 1.6 6.2 1.9 3.8 3.4 2.9 0.4 3.3 8.4

3.4 2.2 1.9 0.3 2.1 4.4 2.9 8.8 7.4 9.5 7.9 10.7 2.7 3.5 -0.3 2.7 4.0 4.2 9.2 2.7 6.3 2.0 3.0 4.0 3.6 1.1 2.9 10.8

4.1 1.4 2.6 0.6 1.7 4.2 3.8 9.5 4.3 7.7 7.5 10.9 4.3 3.8 -0.5 3.0 4.5 5.0 9.0 3.8 6.8 2.8 4.1 5.2 4.5 1.3 3.0 12.8

4.4 1.4 3.3 0.4 1.8 4.0 4.6 9.4 5.9 8.9 8.2 11.6 4.2 4.6 -0.4 3.5 5.3 5.9 8.9 5.2 5.9 3.3 4.5 4.7 4.2 1.6 4.1 19.4

4.6 1.6 3.4 0.3 1.9 3.4 4.1 7.7 6.6 9.3 4.6 9.6 3.1 5.5 -0.2 3.6 4.8 6.0 8.5 6.1 4.8 3.4 4.8 4.8 4.6 1.4 4.3 22.5

4.5 1.7 2.6 0.2 2.1 3.4 3.7 7.6 6.9 8.5 5.0 8.6 3.0 6.3 -0.7 3.6 3.0 3.8 8.0 4.8 4.9 3.4 4.4 4.3 4.5 1.7 4.4 19.1

3.1 2.0 2.4 0.0 2.7 3.2 2.7 7.3 8.3 8.5 4.3 9.4 2.7 6.5 -0.6 3.3 3.1 3.3 6.7 4.6 5.5 3.3 4.5 2.9 3.7 1.7 4.1 16.2

2.5 2.2 2.3 0.4 2.4 3.2 2.7 7.7 7.4 8.3 3.9 9.5 2.2 6.2 -0.6 2.7 3.0 2.5 7.5 4.2 6.3 3.1 4.2 3.0 3.6 1.9 3.6 11.1

2.2 2.3 2.4 1.1 2.3 3.7 3.1 8.1 7.1 8.0 3.8 9.7 2.2 5.8 -0.1 3.0 3.0 2.3 7.9 6.1 6.5 3.0 4.5 2.9 3.5 2.3 3.4 8.7

1.9 2.4 2.4 1.0 2.0 3.9 3.8 7.5 6.6 7.8 4.0 10.5 2.4 5.3 -0.0 3.5 2.9 3.1 7.8 6.4 6.5 2.8 4.8 3.2 3.4 2.0 3.2 8.9

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Short rates3 month money End period North America 2007 Q4 2008 Q4 2009 Q4 2010 Q4 ______ 2011 _______ ________________ 2012 _________________ Q3f Q4f Q1f Q2f Q3f Q4f

US (USD) Canada (CAD)Latin America

4.7 4.5 7.3 11.2 6.2 4.6

1.4 1.9 8.2 13.0 7.9 2.9 2.8 4.0 2.5 0.6 10.0 5.8 20.6 15.5 20.0 11.4 0.6 4.1 6.0 1.7 9.2 1.0 12.0 3.4 6.1 1.4 4.7 1.0 3.6

0.3 0.5 4.6 8.7 0.5 0.7 0.6 2.2 0.5 0.3 6.0 4.2 6.6 7.5 16.1 7.1 0.3 4.0 2.8 1.7 3.7 0.1 6.6 2.3 3.9 0.7 2.8 0.5 1.4

0.3 1.2 4.4 11.1 3.3 0.9 0.8 2.6 1.8 0.2 5.7 4.0 3.8 6.7 7.5 5.6 0.2 4.9 3.3 5.0 7.2 0.3 6.4 3.0 0.8 0.4 2.8 0.7 2.2

0.4 1.2 4.3 12.1 5.3 1.5 1.0 3.0 2.5 0.0 5.9 4.6 4.8 6.0 7.0 5.6 0.2 4.8 2.8 6.8 8.3 0.3 6.8 3.1 4.5 0.4 4.1 1.1 3.8

0.4 1.3 4.3 11.0 5.1 1.5 0.9 2.7 2.3 0.3 5.8 4.6 5.5 6.0 9.0 5.5 0.3 5.3 3.4 4.9 7.7 0.3 6.8 3.1 4.5 0.7 4.1 1.1 4.1

0.4 1.3 4.3 10.0 4.6 1.3 0.8 3.0 2.5 0.3 5.8 4.6 5.5 6.3 7.0 5.2 0.3 5.5 3.9 4.6 7.7 0.3 6.8 3.4 5.2 0.7 4.3 1.1 4.1

0.4 1.3 4.4 10.0 4.6 1.3 0.8 3.2 2.7 0.5 5.8 4.6 5.7 6.5 7.0 5.4 0.3 5.6 4.2 4.4 7.7 0.3 7.3 3.6 5.5 0.9 4.6 1.2 4.1

0.4 1.3 4.8 10.0 4.6 1.3 0.8 3.6 2.9 0.7 5.7 4.8 6.3 6.8 9.0 5.5 0.3 5.7 4.5 4.7 7.7 0.3 7.6 3.6 5.7 0.9 4.6 1.4 4.1

0.4 1.5 5.0 10.0 4.6 1.3 0.9 4.0 3.1 0.8 5.6 4.8 6.5 7.0 9.0 5.8 0.3 5.8 4.6 4.3 7.7 0.3 7.6 3.6 5.7 1.0 4.6 1.5 4.1

Mexico (MXN) Brazil (BRL) Chile (CLP)Western Europe Eurozone Other Western Europe

UK (GBP) Norway (NOK) Sweden (SEK) Switzerland (CHF)EMEA

5.9 5.9 4.7 2.6 7.6 5.1 6.3 16.0 6.6 11.3 0.6 7.3 8.9 3.3 8.3 3.5 7.8 3.6 3.7 2.5 5.7 2.2 3.7

Hungary (HUF) Poland (PLN) Russia (RUB)* Turkey (TRY) Ukraine (UAH) South Africa (ZAR)Asia-Pacific

Japan (JPY) Australia (AUD) New Zealand (NZD)Asia ex Japan

China (CNY)Asia ex Japan & China

India (INR) Hong Kong (HKD) Indonesia (IDR) Malaysia (MYR) Philippines (PHP) Singapore (SGD) South Korea (KRW) Taiwan (TWD) Thailand (THB)Note: * = 1-month money Source: HSBC

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Long rates10-year bond yields End period Americas 2007 Q4 2008 Q4 2009 Q4 2010 Q4 ______ 2011________ _________________ 2012 __________________ Q3f Q4f Q1f Q2f Q3f Q4f

US Canada ChileWestern Europe Eurozone

3.5 3.4 6.3 3.8 3.4 3.7 4.3 4.0 3.7 4.2 3.5 2.3 7.6 5.7 6.3 8.4 1.4 5.5 6.0 7.8 2.9 9.2 6.4 2.3

3.3 3.3 7.4 3.5 3.2 3.5 4.0 3.7 3.7 4.1 3.3 2.0 10.0 5.4 11.3 7.3 1.3 5.4 5.6 5.3 2.4 11.8 7.3 1.4

3.8 3.6 5.9 3.6 3.4 3.6 4.0 3.9 4.1 4.4 3.3 1.9 7.7 6.3 8.7 9.0 1.3 5.7 6.0 7.7 2.6 10.1 7.9 2.7

3.3 3.2 6.1 3.8 3.0 3.4 4.5 5.5 3.7 3.7 3.3 1.8 7.9 6.0 7.7 8.4 1.2 5.6 5.8 8.0 2.9 8.3 5.9 1.8

1.9 2.1 6.3 3.3 1.9 2.6 5.5 5.1 2.4 2.4 1.7 1.0 7.5 6.2 8.0 8.4 1.0 4.2 4.4 8.5 1.5 6.9 5.6 1.5

1.5 2.0 5.1 3.1 1.5 2.4 5.6 5.1 2.0 2.1 1.5 0.8 7.6 6.0 8.6 8.2 1.0 4.0 4.4 8.3 1.4 7.0 5.4 1.4

1.7 2.1 7.0 3.1 1.6 2.3 5.4 4.9 2.1 2.2 1.6 0.9 7.5 6.2 8.1 8.0 0.9 3.9 4.3 8.1 1.5 7.4 8.0 1.4

1.7 2.3 7.0 3.1 1.7 2.4 5.4 4.9 2.2 2.3 1.8 0.9 7.5 6.3 7.8 8.1 1.0 4.1 4.4 7.8 1.6 8.0 8.0 1.5

1.8 2.3 7.0 3.2 1.7 2.4 5.5 5.0 2.2 2.4 1.9 1.0 7.4 6.3 7.9 8.3 1.1 4.2 4.5 8.0 1.6 7.8 8.0 1.5

1.8 2.3 7.0 3.2 1.7 2.4 5.5 5.0 2.2 2.4 2.0 1.0 7.3 6.3 7.9 8.5 1.2 4.4 4.5 7.8 1.9 7.6 8.0 1.7

Germany France Italy SpainOther Western Europe

UK Norway Sweden SwitzerlandEMEA

Hungary Poland Russia South AfricaAsia-Pacific

Japan Australia New ZealandAsia ex Japan

India Hong Kong Indonesia Philippines SingaporeSource: HSBC

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Exchange rates vs USDExchange rates vs USD End period Americas 2007 Q4 2008 Q4 2009 ____ 2010 _____ ____________ 2011 ____________ Q4 Q3 Q4 Q1 Q2 Q3f Q4f ____________2012 ____________ Q1f Q2f Q3f Q4f

Canada (CAD) Mexico (MXN) Brazil (BRL) Argentina (ARS) Chile (CLP)Western Europe

0.99 10.92 1.77 3.15 498 1.46 1.99 6.46 5.43 1.13 18.19 172.9 2.46 24.5 1.17 5.05 3.95 5.52 6.83 112 0.88 0.77 7.31 7.80 39.4 9393 3.31 41.28 1.44 936 32.4 33.72 16217

1.23 13.81 2.31 3.45 637 1.39 1.44 7.91 7.00 1.06 19.31 191.3 2.96 29.4 1.54 8.05 3.78 5.52 9.25 91 0.70 0.58 6.82 7.75 48.6 11027 3.46 47.47 1.43 1263 32.9 34.90 16900

1.05 13.08 1.74 3.80 507 1.43 1.61 7.14 5.78 1.03 18.40 188.3 2.86 30.2 1.50 8.00 3.75 5.48 7.36 93 0.90 0.73 6.83 7.75 46.4 9425 3.42 46.50 1.41 1166 32.1 33.33 18200

1.03 12.62 1.69 3.96 484 1.37 1.58 6.73 5.86 0.98 18.00 202.6 2.91 30.4 1.45 7.93 3.75 5.71 6.97 84 0.97 0.74 6.69 7.76 44.6 8925 3.09 43.90 1.31 1140 31.2 30.37 19475

0.99 12.36 1.67 3.97 468 1.34 1.57 6.72 5.81 0.93 18.70 207.5 2.95 30.5 1.54 7.97 3.57 5.70 6.62 81 1.03 0.78 6.59 7.77 44.7 9010 3.08 43.65 1.28 1121 30.4 30.10 19498

0.97 11.89 1.63 4.06 478 1.42 1.60 6.31 5.53 0.91 17.31 187.2 2.84 28.4 1.55 7.96 3.56 5.90 6.76 83 1.03 0.76 6.55 7.78 44.5 8708 3.03 43.46 1.26 1097 29.4 30.25 20895

0.97 11.71 1.56 4.11 467 1.45 1.61 6.31 5.37 0.84 16.78 183.1 2.75 28.1 1.62 7.97 3.50 6.00 6.78 81 1.07 0.83 6.46 7.78 44.7 8577 3.02 43.34 1.23 1067 28.7 30.70 20515

1.04 13.88 1.85 4.21 521 1.34 1.56 6.87 5.87 0.91 18.42 218.7 3.29 31.9 1.86 8.00 3.70 6.00 8.04 77 0.97 0.76 6.38 7.78 49.0 8790 3.19 43.73 1.31 1181 30.5 31.12 20830

0.97 12.00 1.65 4.28 455 1.38 1.59 6.52 5.43 0.87 17.97 206.5 3.15 31.5 1.75 8.05 3.80 6.00 7.60 74 0.95 0.76 6.35 7.80 49.0 8800 3.10 43.50 1.27 1150 30.0 30.70 21500

1.00 12.25 1.65 4.40 455 1.40 1.61 6.36 5.32 0.86 17.29 200.0 3.00 28.8 1.70 8.50 3.75 6.10 7.30 73 0.94 0.76 6.30 7.80 48.2 8700 3.05 43.00 1.25 1130 29.5 30.20 21500

1.00 12.50 1.65 4.53 460 1.42 1.63 6.20 5.21 0.85 16.90 193.7 2.96 31.1 1.65 8.70 3.70 6.25 7.10 73 0.94 0.75 6.25 7.80 47.4 8550 3.00 42.50 1.23 1110 29.0 29.70 21500

1.00 12.50 1.65 4.66 465 1.44 1.66 6.04 5.14 0.83 16.67 187.5 2.85 32.2 1.60 9.00 3.60 6.40 7.00 72 0.93 0.74 6.20 7.80 46.6 8400 2.95 42.00 1.21 1090 28.5 29.20 21500

1.00 12.50 1.65 4.80 470 1.44 1.66 6.04 5.14 0.83 16.67 184.0 2.78 32.6 1.60 9.50 3.50 6.50 7.00 72 0.93 0.74 6.15 7.80 45.5 8300 2.88 41.00 1.19 1070 28.0 28.80 21500

Eurozone (EUR)Other Western Europe

UK (GBP) Sweden (SEK) Norway (NOK) Switzerland (CHF)EMEA

Czech Republic (CZK) Hungary (HUF) Poland (PLN) Russia (RUB) Turkey (TRY) Ukraine (UAH) Israel (ILS) Egypt (EGP) South Africa (ZAR)Asia/Pacific

Japan (JPY) Australia (AUD) New Zealand (NZD) China (CNY) Hong Kong (HKD) India (INR) Indonesia (IDR) Malaysia (MYR) Philippines (PHP) Singapore (SGD) South Korea (KRW) Taiwan (TWD) Thailand (THB) Vietnam (VND)Source: HSBC

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Exchange rate vs EUR & GBPExchange rate vs EUR & GBP End period vs EUR Americas 2007 Q4 2008 Q4 2009 ____2010 ____ ___________ 2011____________ Q4 Q3 Q4 Q1 Q2 Q3f Q4f ___________2012 ____________ Q1f Q2f Q3f Q4f

US (USD) Canada (CAD)Europe

1.46 1.44 0.73 9.45 1.66 7.94 26.6 253 3.60 35.88 163.3 1.67 1.90 9.99

1.39 1.72 0.97 10.99 1.48 9.73 26.8 266 4.12 40.84 126.0 1.99 2.38 12.85

1.43 1.50 0.89 10.24 1.48 8.29 26.4 270 4.11 43.39 133.6 1.60 1.97 10.56

1.37 1.40 0.87 9.19 1.33 7.99 24.6 277 3.98 41.51 114.0 1.41 1.86 9.52

1.34 1.33 0.86 9.02 1.25 7.80 25.1 278 3.96 40.89 108.8 1.31 1.72 8.88

1.42 1.38 0.89 8.95 1.30 7.85 24.6 266 4.03 40.34 117.6 1.37 1.86 9.59

1.45 1.40 0.90 9.15 1.22 7.78 24.3 266 3.98 40.70 117.1 1.35 1.76 9.83

1.34 1.40 0.86 9.21 1.22 7.88 24.7 293 4.42 42.77 103.4 1.38 1.76 10.79

1.38 1.34 0.87 9.00 1.20 7.50 24.8 285 4.35 43.47 102.1 1.45 1.82 10.49

1.40 1.40 0.87 8.90 1.20 7.45 24.2 280 4.20 40.32 102.2 1.49 1.84 10.22

1.42 1.42 0.87 8.80 1.20 7.40 24.0 275 4.20 44.16 103.7 1.51 1.89 10.08

1.44 1.44 0.87 8.70 1.20 7.40 24.0 270 4.10 46.37 103.7 1.55 1.95 10.08

1.44 1.44 0.87 8.70 1.20 7.40 24.0 265 4.00 46.94 103.7 1.55 1.95 10.08

UK (GBP) Sweden (SEK) Switzerland (CHF) Norway (NOK) Czech Republic (CZK) Hungary (HUF) Poland (PLN) Russia (RUB)Asia/Pacific

Japan (JPY) Australia (AUD) New Zealand (NZD)Africa

South Africa (ZAR)vs GBP Americas

US (USD) Canada (CAD)Europe

1.99 1.96 0.73 12.86 10.81 2.25 222 2.27 2.59 13.60

1.44 1.77 0.97 11.37 10.07 1.53 130 2.06 2.46 13.29

1.61 1.69 0.89 11.53 9.33 1.67 150 1.80 2.22 11.89

1.58 1.62 0.87 10.61 9.23 1.54 132 1.63 2.14 10.99

1.57 1.56 0.86 10.53 9.10 1.46 127 1.53 2.00 10.36

1.60 1.56 0.89 10.11 8.87 1.47 133 1.55 2.10 10.84

1.61 1.55 0.90 10.13 8.61 1.35 130 1.50 1.94 10.88

1.56 1.62 0.86 10.70 9.15 1.41 120 1.60 2.04 12.52

1.59 1.54 0.87 10.35 8.63 1.38 117 1.67 2.09 12.07

1.61 1.61 0.87 10.24 8.57 1.38 118 1.71 2.12 11.76

1.63 1.63 0.87 10.12 8.51 1.38 119 1.74 2.18 11.60

1.66 1.66 0.87 10.01 8.51 1.38 119 1.78 2.24 11.60

1.66 1.66 0.87 10.01 8.51 1.38 119 1.78 2.24 11.60

Eurozone (EUR) Sweden (SEK) Norway (NOK) Switzerland (CHF)Asia/Pacific

Japan (JPY) Australia (AUD) New Zealand (NZD)Africa

South Africa (ZAR)Source: HSBC

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Consumer spendingConsumer spending % Year World Developed Emerging North America US Canada Latin America Mexico Brazil Argentina Chile Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia UAE South Africa Asia-Pacific Japan Australia New Zealand Asia ex Japan China Asia ex Japan & China Hong Kong India Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam 2003 2.4 2.0 4.2 2.8 2.8 3.0 1.8 2.2 -0.8 8.2 4.2 1.5 1.2 0.3 1.9 1.0 2.9 2.5 3.0 2.5 2.3 0.9 5.2 6.0 8.2 2.6 7.7 6.6 12.6 2.2 2.3 1.3 1.3 10.5 2.8 2.4 0.4 3.8 5.7 4.8 6.5 3.9 -1.3 8.2 3.9 6.6 5.3 1.6 -0.4 2.9 6.4 8.0 2004 3.2 2.6 5.9 3.4 3.5 3.3 5.5 5.6 3.8 9.5 7.2 1.7 1.3 0.1 1.7 0.8 4.2 2.8 3.1 5.0 2.6 1.6 8.6 2.9 3.2 4.8 12.5 11.0 13.0 15.8 2.1 5.0 5.3 29.1 6.2 3.1 1.6 5.7 5.4 4.6 7.2 3.3 7.0 1.7 5.0 10.5 5.9 6.1 0.3 5.2 6.1 7.1 2005 3.3 2.6 6.8 3.4 3.4 3.7 5.2 4.8 4.5 8.9 7.4 1.9 1.8 0.2 2.5 1.1 4.2 2.1 2.2 3.9 2.8 1.7 8.1 2.5 3.5 2.1 12.2 7.9 20.1 10.3 4.8 3.5 8.8 22.5 6.1 3.7 1.3 3.2 4.6 6.8 8.5 5.8 3.0 8.5 4.0 9.1 4.8 3.6 4.6 2.9 4.9 7.3 2006 3.3 2.4 7.1 3.0 2.9 4.2 5.8 5.7 5.2 7.8 7.1 2.1 2.1 1.6 2.4 1.2 3.8 2.0 1.8 4.8 2.8 1.6 8.7 5.0 2.0 5.0 12.2 4.6 15.9 12.9 6.4 4.3 10.2 24.0 8.3 3.9 1.5 3.4 2.2 6.8 8.7 5.8 5.9 8.3 3.2 6.8 5.5 3.5 4.7 1.5 3.2 8.3 2007 3.2 2.2 7.5 2.5 2.4 4.6 5.4 4.0 6.1 9.0 7.0 1.8 1.6 -0.2 2.3 1.1 3.6 2.4 2.2 5.2 3.8 2.3 8.9 4.8 -1.7 4.9 14.3 5.5 17.2 12.1 4.2 6.3 17.7 12.0 5.5 4.5 1.6 5.5 4.1 7.7 9.0 6.9 8.5 9.3 5.0 10.5 5.8 6.4 5.1 2.1 1.8 10.8 2008 1.2 0.0 5.7 -0.1 -0.3 3.0 3.7 1.8 5.7 6.5 4.5 0.4 0.3 0.5 0.2 -0.8 -0.6 0.5 0.4 1.5 -0.1 1.4 6.5 3.6 0.7 5.8 10.6 -0.3 13.1 9.8 5.7 3.6 3.5 21.4 2.2 2.5 -0.7 1.9 -0.3 6.2 8.9 4.6 2.4 7.7 5.3 8.7 6.4 3.2 1.3 -0.9 2.9 9.3 2009 -0.9 -1.6 1.5 -1.8 -1.9 0.4 -2.0 -7.1 4.2 0.5 0.9 -1.4 -1.2 0.0 0.1 -1.8 -4.2 -2.0 -3.2 0.2 -0.3 1.4 -1.4 -0.3 -6.8 2.1 -4.8 -2.3 -14.9 -10.7 5.7 1.7 6.7 2.0 -2.0 1.3 -1.9 1.0 -0.8 4.8 8.0 2.8 0.6 7.3 4.9 0.7 2.3 0.2 -0.0 1.1 -1.1 3.1 2010 2.6 1.6 6.2 2.1 2.0 3.3 6.5 5.0 7.0 9.0 10.4 0.9 0.8 0.6 1.3 1.0 1.2 1.2 0.7 3.6 3.6 1.7 3.8 0.4 -2.2 3.2 3.0 6.6 7.0 -1.7 5.1 5.0 3.2 3.8 4.4 4.5 1.8 2.8 2.3 7.3 9.5 5.9 5.8 8.6 4.6 6.5 3.4 4.2 4.1 3.7 4.8 10.0 2011f 2.3 1.2 6.1 2.1 2.1 1.9 5.8 5.0 4.7 10.5 10.2 0.4 0.6 1.0 0.7 0.7 0.4 -0.0 -0.8 2.7 2.4 1.0 4.6 -0.3 0.7 3.5 6.5 4.6 9.0 1.7 5.3 3.8 5.0 4.5 2.7 3.4 -0.4 3.1 1.4 7.0 9.4 5.4 7.7 7.9 4.7 6.3 5.2 5.3 2.5 3.1 3.5 4.9 2012f 2.3 1.2 5.8 1.5 1.5 2.0 4.9 5.1 4.0 6.3 6.0 1.0 0.9 1.0 1.3 0.1 0.3 1.4 1.3 3.5 2.1 1.0 3.9 1.0 1.0 2.6 5.5 3.4 7.0 3.0 1.9 3.2 4.0 7.0 2.2 4.0 0.5 2.5 1.7 7.2 9.3 5.7 5.0 8.1 5.3 6.2 5.1 4.8 3.7 1.9 3.7 5.2

Note: * = based upon Egyptian financial year (July-June). We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC

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Investment spendingInvestment spending % Year World Developed Emerging North America US Canada Latin America Mexico Brazil Argentina Chile Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway*** Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia** UAE** South Africa Asia-Pacific Japan Australia New Zealand Asia ex Japan China Asia ex Japan & China Hong Kong India* Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam 2003 4.3 1.9 12.3 3.5 3.2 6.2 1.1 0.4 -4.6 38.2 5.7 1.1 1.3 -1.2 2.2 -0.9 5.2 0.5 1.2 -2.8 1.8 -1.2 7.4 0.4 2.1 -0.1 13.9 10.0 12.2 0.4 -6.2 -10.7 16.6 17.1 10.2 8.3 -0.5 9.5 10.9 16.7 27.7 5.4 0.9 9.7 0.6 2.7 3.6 -4.9 4.4 -0.1 12.1 11.9 2004 7.4 4.4 16.9 7.4 7.3 7.8 10.6 8.0 9.1 34.4 10.0 2.5 1.8 -1.2 3.0 1.5 5.2 4.9 5.1 9.4 4.9 4.5 11.7 3.9 10.1 5.9 12.6 28.4 20.4 11.3 6.3 4.0 2.5 11.1 12.9 11.2 1.4 7.1 12.8 19.7 27.6 9.9 2.5 20.7 14.7 3.1 1.3 10.1 2.1 14.0 13.2 10.4 2005 7.9 4.8 16.3 6.7 6.5 9.3 8.6 7.5 3.6 22.7 23.9 3.4 3.3 1.0 4.4 1.4 6.5 3.7 2.3 11.6 8.3 3.8 11.0 1.8 6.1 5.4 10.6 17.4 3.9 14.0 10.3 4.0 18.5 15.7 11.0 12.4 3.1 8.7 5.5 19.4 27.2 8.0 4.1 16.2 10.9 5.0 -6.6 0.4 1.9 2.7 10.5 9.8 2006 7.4 3.6 16.7 2.7 2.3 7.1 10.2 9.9 9.8 18.2 2.3 5.9 5.7 8.9 4.2 3.2 8.3 6.7 6.7 12.0 9.4 4.7 14.7 6.0 -2.0 14.2 18.0 13.3 20.9 18.7 13.3 11.3 17.0 28.9 12.1 11.2 0.5 4.5 -1.2 18.4 24.5 7.9 7.1 13.8 2.6 7.5 3.9 14.6 3.4 0.1 3.9 9.9 2007 7.2 1.7 19.4 -1.3 -1.8 3.5 10.2 6.9 13.9 13.6 11.2 5.4 4.7 5.0 6.2 1.4 4.3 7.8 7.9 15.6 9.0 5.1 21.2 10.8 1.5 18.6 21.0 3.1 24.4 29.5 31.8 15.3 18.8 105.2 14.0 13.0 -1.2 10.1 6.0 20.6 25.8 10.3 3.4 16.2 9.3 9.4 10.9 19.6 4.2 0.6 1.5 24.2 2008 3.4 -3.2 15.8 -5.6 -6.4 2.0 9.6 5.9 13.6 9.1 19.4 -1.5 -1.1 1.0 0.1 -3.8 -3.9 -2.8 -4.7 -0.8 0.4 0.5 8.3 -1.5 2.7 11.0 10.6 -6.2 -1.2 18.4 15.5 4.4 12.6 20.8 14.1 11.8 -3.6 7.9 -3.0 18.7 26.1 2.0 1.0 1.5 11.9 1.1 2.8 13.5 -1.9 -12.4 1.2 3.8 2009 -3.3 -14.1 13.5 -18.3 -18.8 -13.1 -11.1 -11.3 -10.3 -10.2 -15.9 -11.9 -11.7 -11.4 -8.8 -12.0 -15.8 -12.5 -15.3 -10.9 -15.1 -4.9 -11.7 -9.2 -7.8 -1.5 -14.4 -19.0 -50.5 -21.4 -9.1 -5.8 -4.6 -15.0 -2.2 13.1 -11.7 -3.2 -12.8 22.7 30.5 1.2 -3.9 7.3 3.3 -5.6 -1.7 -2.9 -1.0 -11.0 -9.2 8.7 2010 9.2 1.4 18.4 3.4 2.6 10.0 12.3 2.3 21.9 21.2 18.8 0.1 -0.9 5.2 -1.4 2.3 -7.0 3.4 3.6 -3.1 5.6 7.5 6.4 4.7 -5.3 -2.2 6.1 29.9 4.9 -14.1 4.2 12.6 3.6 3.8 -3.7 16.4 -0.2 5.8 3.4 21.0 24.5 8.6 8.1 8.6 8.5 9.8 19.1 5.1 7.0 23.4 9.4 10.9 2011f 9.7 3.5 16.0 6.0 5.8 7.6 8.3 7.8 6.3 12.1 14.4 2.7 2.5 7.2 3.2 0.7 -5.3 3.2 1.5 8.5 8.8 4.1 6.4 3.8 0.5 5.0 6.0 11.9 7.0 4.0 -8.5 14.2 8.0 5.5 5.0 14.6 -0.5 5.5 4.9 18.1 21.5 4.2 6.3 7.1 9.4 4.5 4.8 2.9 0.1 0.4 5.9 3.9 2012f 9.7 4.1 14.7 5.0 5.2 3.5 6.2 5.8 6.3 5.0 9.7 2.2 1.6 2.4 3.2 -0.2 -0.2 4.1 4.7 7.3 3.8 2.0 4.5 3.2 1.3 3.2 5.0 2.7 9.0 7.0 -8.6 4.3 9.0 7.8 3.0 15.0 6.0 8.4 11.7 16.8 19.0 6.2 2.8 8.5 10.7 6.1 8.5 4.6 3.0 2.5 5.4 6.6

Note: * = based upon Egyptian financial year (July-June); ** = nominal growth; *** = mainland. We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC

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ExportsExport volume growth (GDP basis) % Year World Developed Emerging North America US Canada Latin America Mexico Brazil Argentina Chile Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway*** Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia UAE** South Africa Asia-Pacific Japan Australia New Zealand Asia ex Japan China Asia ex Japan & China Hong Kong India* Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam 2003 5.9 1.8 16.4 0.6 1.6 -2.3 9.2 2.3 21.1 14.8 19.2 1.3 1.2 2.5 -1.3 -1.5 3.7 1.7 1.8 2.5 4.4 -0.5 19.2 7.2 6.2 14.2 26.7 27.6 27.2 2.3 15.2 10.7 28.7 31.1 0.1 13.9 9.2 -1.6 2.3 16.8 32.0 11.2 12.8 9.6 5.9 5.7 4.8 14.2 14.5 10.2 7.0 20.6 2004 12.1 7.7 21.8 8.4 9.5 5.0 22.0 14.1 32.0 16.9 50.1 6.6 7.0 9.7 4.2 3.6 4.2 5.6 5.0 4.5 10.0 7.9 24.6 20.7 15.3 12.8 34.8 11.2 40.8 14.2 27.4 18.2 34.8 35.5 2.8 18.1 13.9 4.0 6.1 20.5 32.0 15.5 15.4 19.0 13.5 2.3 15.0 19.1 19.7 15.4 9.6 31.4 2005 10.1 5.7 18.7 5.6 6.7 1.9 17.9 14.0 22.6 16.0 26.9 5.7 5.3 8.0 3.1 2.0 2.5 6.8 7.9 6.7 7.0 7.8 22.5 11.6 11.3 9.3 33.1 7.9 7.5 7.7 32.3 4.3 43.6 28.9 8.6 14.1 7.0 2.9 -0.5 17.1 29.0 11.2 10.6 25.8 16.6 8.3 4.8 12.4 7.8 7.8 4.2 22.5 2006 11.7 8.5 17.2 7.1 9.0 0.6 19.4 16.7 16.5 16.1 42.2 9.0 8.8 13.5 5.5 6.6 6.7 9.5 11.1 8.5 9.4 10.3 18.5 15.8 18.6 14.8 24.7 6.6 22.8 10.5 33.4 6.0 16.9 24.1 7.5 14.3 9.7 2.2 1.7 16.2 25.0 11.2 9.4 20.0 9.4 6.6 13.4 10.9 11.4 11.4 9.1 22.7 2007 9.3 6.0 14.7 7.6 9.3 1.2 13.0 8.8 16.6 20.1 15.8 5.2 6.2 8.3 2.3 4.0 6.6 2.1 -2.6 8.8 6.3 9.6 15.1 15.0 16.4 9.1 16.6 7.3 37.0 8.0 19.3 9.3 10.5 22.7 6.6 13.1 8.4 2.4 3.9 14.8 23.8 9.1 8.3 5.9 8.5 4.1 5.5 9.3 12.6 9.6 7.8 21.9 2008 6.1 1.7 12.6 3.9 6.0 -4.7 12.5 7.2 23.2 25.5 -2.5 0.9 0.7 2.1 -0.6 -4.4 -1.0 1.5 1.0 4.1 0.3 3.1 23.7 6.0 6.1 5.8 33.1 2.7 38.9 8.6 33.3 5.2 34.4 33.9 1.8 6.0 1.6 4.7 -1.8 7.2 11.2 4.2 2.6 14.4 9.5 1.7 -5.3 4.0 6.6 0.9 5.1 29.1 2009 -14.6 -12.5 -17.4 -10.2 -9.4 -13.8 -21.3 -21.2 -22.7 -20.5 -18.5 -12.1 -13.1 -13.6 -12.2 -18.4 -11.6 -8.8 -10.1 -5.4 -11.8 -8.6 -26.1 -10.8 -9.3 -6.7 -35.5 -5.0 -46.8 -5.0 -14.3 -12.5 -38.7 -19.8 -19.5 -13.6 -23.9 2.6 1.9 -11.7 -17.9 -7.0 -10.1 -5.5 -9.7 -10.5 -7.8 -8.1 -1.2 -8.7 -12.5 -8.9 2010 15.6 11.0 22.1 10.5 11.3 6.4 30.0 29.9 32.0 23.1 31.5 9.7 10.9 13.4 9.3 8.9 10.3 5.8 5.2 3.0 9.9 8.4 18.3 17.7 14.2 10.2 31.6 3.4 36.3 13.2 -5.1 13.4 23.1 10.7 4.7 22.0 23.9 5.7 2.8 22.4 29.4 17.5 16.8 17.9 14.9 9.9 21.0 19.2 14.5 25.7 14.7 26.4 2011f 10.8 9.8 12.2 11.0 7.1 3.2 11.0 18.9 25.2 18.3 25.9 11.0 6.0 7.8 4.0 3.5 7.7 11.0 5.2 0.5 6.7 4.6 15.9 9.7 8.0 8.0 26.6 8.7 35.8 8.0 16.3 5.5 33.5 22.5 7.0 8.7 0.4 -0.5 4.1 10.8 16.0 6.8 10.2 14.9 11.2 5.3 0.1 3.2 7.7 4.3 9.1 27.0 2012f 10.2 11.3 8.8 12.0 6.1 3.1 12.0 16.3 6.8 9.3 5.9 12.0 1.7 3.1 0.8 0.4 0.6 12.0 1.7 2.3 1.7 1.4 7.3 8.5 3.0 6.0 1.5 8.0 20.0 5.5 9.9 4.0 -4.4 4.1 5.5 8.1 3.9 12.5 5.4 8.8 10.0 7.8 11.2 7.0 8.1 7.5 5.9 8.3 7.3 1.3 6.6 24.6

Note: * = based upon Egyptian financial year (July-June); ** = nominal growth, *** = mainland. We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC

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Industrial productionIndustrial production % Year World Developed Emerging North America US Canada Latin America Mexico Brazil Argentina Chile Western Europe Eurozone Germany France* Italy Spain Other Western Europe UK* Norway* Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt Israel Saudi Arabia UAE South Africa Asia-Pacific Japan Australia New Zealand Asia ex Japan China Asia ex Japan & China Hong Kong India Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand VietnamNote: * = Manufacturing output Source: HSBC

2003 4.7 1.0 9.6 1.2 1.3 0.2 3.0 0.8 0.1 16.2 5.2 0.1 0.3 0.2 -1.2 -0.6 1.3 -0.5 -0.6 -4.1 1.8 0.4 7.9 1.6 6.4 8.7 8.8 8.8 15.8 -0.2 3.1 -0.3 20.2 12.7 -1.9 9.4 3.0 1.3 1.6 11.4 16.7 6.4 -9.2 7.0 5.3 3.7 4.2 -30.3 5.5 9.1 12.8 19.8

2004 6.6 2.5 11.6 2.3 2.3 1.5 7.2 3.7 8.3 10.7 8.8 2.1 2.2 2.5 1.3 -0.2 1.8 1.6 1.0 0.7 4.1 4.0 9.9 10.4 8.3 12.7 6.6 9.8 12.5 2.7 15.8 6.9 23.9 6.7 4.0 11.0 4.8 -0.1 2.3 13.0 16.3 9.9 2.9 11.7 6.4 0.3 5.0 13.9 10.4 9.3 11.1 16.0

2005 5.5 2.0 9.5 3.1 3.2 1.7 3.9 2.8 3.1 8.0 5.4 1.1 1.6 2.9 0.2 -0.6 1.0 -0.2 -1.3 2.6 2.4 2.7 6.6 3.9 7.0 4.0 3.2 5.4 3.1 -3.0 7.6 3.6 38.0 5.6 3.0 9.3 1.4 1.7 0.3 11.5 15.9 6.9 2.5 7.9 4.6 6.3 5.3 9.5 6.3 3.8 8.8 17.2

2006 6.4 2.9 10.6 2.0 2.2 -0.0 4.7 5.7 2.8 8.4 3.2 3.6 4.2 5.7 1.3 3.7 3.9 1.6 0.1 5.7 3.7 7.8 7.5 8.3 10.2 12.1 4.0 7.8 6.2 9.2 9.7 8.5 15.4 10.3 4.8 10.7 4.5 1.2 -5.0 12.6 16.2 8.8 2.2 11.9 4.6 6.7 4.2 11.9 8.4 4.7 6.4 17.0

2007 6.1 2.9 9.9 2.4 2.7 -0.5 4.9 2.0 6.0 7.5 4.1 3.4 3.9 5.9 1.2 1.9 1.9 1.8 0.1 5.8 4.1 9.5 6.9 10.6 8.1 9.4 3.7 6.9 7.6 10.4 16.4 4.3 9.6 8.0 4.6 9.9 2.8 4.3 5.4 11.7 16.0 7.4 -1.5 8.7 4.7 2.8 3.3 5.9 6.9 7.8 8.1 17.1

2008 1.4 -2.8 6.3 -3.8 -3.7 -4.5 1.6 -0.1 3.1 1.1 0.2 -1.7 -1.6 -0.0 -2.7 -3.7 -7.5 -2.1 -2.8 2.9 -3.7 1.3 4.0 -1.8 0.1 3.0 -0.9 -0.9 -5.2 2.8 21.9 6.9 34.3 6.4 0.9 5.6 -3.3 2.8 -7.6 7.8 12.9 2.7 -6.7 3.2 3.7 1.3 4.8 -4.2 3.4 -1.8 3.9 14.6

2009 -6.1 -13.3 2.5 -11.0 -11.1 -9.4 -7.0 -7.6 -7.4 -4.9 -6.7 -13.8 -14.8 -15.5 -13.6 -18.7 -15.6 -10.9 -10.7 -6.3 -17.3 -7.9 -10.2 -12.7 -17.4 -3.6 -10.1 -9.6 -21.9 -5.2 17.8 -6.2 -30.7 -4.0 -12.6 2.2 -21.9 -2.5 -1.4 7.9 12.9 2.8 -8.3 10.5 2.2 -9.0 -4.8 -4.2 -0.1 -8.1 -7.2 7.6

2010 9.7 7.3 12.6 5.2 5.3 4.6 8.4 6.0 10.4 10.3 0.5 6.7 7.5 10.1 4.9 6.4 0.8 4.3 3.6 2.8 8.9 6.3 11.2 9.9 9.7 11.1 10.3 13.1 11.2 5.5 18.1 8.6 20.4 2.4 5.0 14.0 16.5 5.3 -0.5 13.9 15.7 12.0 3.5 7.8 4.5 11.7 11.2 29.7 16.2 26.9 14.4 14.0

2011f 5.5 3.3 8.1 3.6 3.7 2.2 4.0 3.3 2.3 9.0 6.6 3.3 3.5 8.6 3.7 0.4 -2.2 2.8 2.4 1.4 7.6 1.9 7.2 6.5 4.5 7.5 4.6 8.5 6.9 6.0 4.0 3.0 29.4 3.8 3.6 7.7 2.8 -0.4 4.3 9.1 13.2 5.0 -0.6 4.2 5.8 4.7 6.8 5.3 5.8 6.4 1.6 -

2012f 4.0 0.8 7.8 2.0 2.0 1.6 5.1 4.2 5.6 5.4 5.0 0.8 0.7 3.2 1.6 -0.0 -1.5 1.2 1.1 1.4 0.8 1.5 3.8 4.3 3.0 5.5 2.5 6.0 7.0 7.5 10.0 3.4 -3.1 3.7 3.1 6.9 -4.0 4.5 3.2 9.4 12.5 6.3 8.1 6.4 5.0 5.0 8.5 4.0 8.5 2.5 5.6 -

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Wage growthWage growth % Year World North America US Canada Latin America Mexico Brazil Argentina Chile Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Israel South Africa Asia-Pacific Japan Australia New Zealand Asia ex Japan China Asia ex Japan, China & India Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand 2003 6.2 3.6 3.7 2.7 7.3 5.8 12.1 3.4 3.0 2.9 2.0 2.4 2.2 5.0 2.9 3.2 4.4 18.2 5.8 12.1 4.7 26.0 22.9 22.8 5.8 -3.0 8.1 8.6 -0.8 3.6 2.3 11.2 13.6 4.1 -1.4 10.0 4.0 0.4 1.2 9.4 2.6 2.2 2004 5.8 3.7 3.8 2.7 6.3 4.7 4.6 11.0 2.7 2.8 2.3 0.9 2.5 2.8 3.9 3.7 4.2 4.1 15.5 6.3 6.2 2.8 21.9 11.7 27.6 22.6 3.7 7.5 7.9 -0.7 3.6 2.3 10.2 12.3 3.8 -0.3 16.6 3.4 3.6 3.6 6.5 2.9 2.3 2005 6.4 3.3 3.2 3.9 10.7 3.8 7.6 26.0 6.3 2.8 2.3 1.1 2.8 3.1 3.1 4.0 4.6 3.9 18.2 5.0 8.7 4.4 26.9 12.5 36.7 17.0 3.4 6.5 8.8 0.6 4.0 2.8 10.8 12.3 5.1 1.6 8.5 3.9 8.5 2.6 6.4 2.8 6.9 2006 6.5 3.1 3.1 2.5 9.2 5.1 7.2 19.4 3.5 3.0 2.5 1.1 2.8 3.0 2.9 4.3 4.9 4.1 17.4 6.6 8.2 5.0 24.3 13.2 29.2 18.8 1.5 9.1 12.3 0.2 4.1 3.2 11.8 14.0 4.4 2.2 6.2 10.1 7.9 4.3 5.6 1.4 6.2 2007 7.2 3.4 3.3 4.3 9.7 5.4 7.3 20.0 4.5 3.4 2.9 1.3 2.7 2.2 4.4 4.2 4.7 6.3 20.1 7.2 8.0 9.1 27.8 14.7 31.9 22.0 5.6 8.9 13.4 -1.0 4.0 3.2 13.1 16.2 3.7 2.8 4.9 7.3 4.5 3.5 5.9 1.8 3.0 2008 7.1 2.9 2.9 2.9 11.1 6.0 9.9 23.4 5.3 3.7 3.6 2.8 2.9 3.5 5.2 3.3 3.5 5.6 20.1 8.3 7.6 10.5 27.2 10.8 33.7 24.6 3.0 11.6 13.1 -0.3 4.2 3.6 12.7 15.8 3.4 0.9 7.6 0.5 5.3 4.1 3.1 -0.3 10.2 2009 3.2 1.7 1.7 1.6 8.3 4.6 8.4 17.3 4.0 2.2 2.6 2.1 2.2 3.1 4.3 0.6 -0.1 4.3 2.9 7.5 4.0 0.6 4.2 8.6 -1.9 9.1 8.8 1.0 10.8 5.1 -3.9 3.6 2.5 5.7 9.0 -1.9 0.8 5.3 -5.0 2.2 5.0 2.6 -9.2 -2.5 2010 5.6 2.0 1.9 3.5 11.2 3.4 9.2 29.3 4.7 1.7 1.4 1.6 1.8 2.1 1.2 2.1 1.9 3.6 2.4 13.1 2.3 1.4 3.6 11.8 15.7 16.4 2.5 3.6 14.6 12.4 0.6 3.3 1.6 11.9 13.0 6.4 3.3 10.9 2.0 3.4 0.3 6.8 8.6 6.5 2011f 5.5 2.3 2.2 2.9 11.1 3.9 9.9 27.2 6.0 2.2 2.1 1.8 2.2 1.8 0.8 2.4 2.3 4.0 2.1 12.2 2.4 4.0 4.4 12.6 14.5 17.6 4.0 5.9 9.0 11.3 -0.5 3.8 2.1 11.0 13.0 4.2 4.8 10.0 4.0 5.5 6.0 2.9 3.8 5.9 2012f 5.2 2.1 2.1 2.6 9.3 4.0 9.3 21.5 4.8 2.3 2.2 2.0 2.4 1.7 1.0 2.5 2.4 3.2 2.9 11.4 3.0 4.5 5.0 11.9 13.0 15.0 4.8 6.8 8.0 10.9 -0.2 3.8 2.8 10.6 12.0 5.0 4.9 9.0 4.0 6.5 5.0 6.0 4.2 3.6

Note: Global and regional aggregates are calculated using the World Bank's 2004 PPP weights Source: HSBC

32


abc

Budget balanceBudget balance % GDP North America US Canada* Latin America Mexico Brazil Argentina Chile Western Europe Eurozone Germany France Italy Spain Other Western Europe UK* Norway Sweden EMEA Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia UAE South Africa Asia-Pacific Japan Australia New Zealand Asia ex Japan China Asia ex Japan & China Hong Kong India* Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam 2003 -3.1 -3.4 0.7 -2.6 -0.6 -5.2 0.5 -0.5 -2.8 -3.1 -4.0 -4.1 -3.5 -0.2 -1.9 -2.9 7.3 -1.2 -2.2 -7.2 -6.2 1.7 -8.8 0.2 -1.5 -10.4 -5.5 4.5 3.6 -2.5 -3.4 -7.1 0.9 4.0 -2.6 -2.2 -3.1 -3.2 -4.7 -1.7 -4.4 -4.4 -1.5 -1.8 -1.2 0.3 -4.9 2004 -3.2 -3.5 0.7 -0.9 -0.2 -2.9 2.6 2.1 -2.7 -3.0 -3.8 -3.6 -3.5 -0.4 -1.7 -3.3 11.1 0.6 -0.3 -6.4 -5.4 4.3 -5.4 -3.3 -1.2 -9.5 -3.9 11.4 10.0 -2.0 -2.9 -7.1 0.9 4.1 -2.0 -1.3 -2.7 1.7 -3.9 -1.0 -4.1 -3.7 -1.1 -2.3 -2.2 0.0 -4.9 2005 -2.3 -2.6 0.8 -1.1 -0.1 -3.6 1.8 4.6 -2.2 -2.6 -3.3 -3.0 -4.2 1.0 -0.9 -2.9 15.1 2.2 2.5 -7.9 -4.1 7.5 -1.3 -1.8 -1.2 -9.6 -1.9 18.4 20.8 -0.5 -2.5 -6.2 1.5 4.5 -1.9 -1.2 -2.5 1.0 -4.0 -0.5 -3.6 -2.6 -0.3 -2.6 -0.6 0.3 -4.9 2006 -1.7 -1.9 0.9 -0.9 0.1 -3.6 1.8 7.5 -1.0 -1.3 -1.6 -2.3 -3.3 2.0 -0.1 -2.3 18.5 2.3 3.2 -9.3 -3.6 7.4 -0.5 -0.8 -2.2 -8.2 -0.9 21.0 26.6 0.3 -2.1 -5.3 1.6 5.1 -1.5 -1.0 -2.0 4.0 -3.3 -0.9 -3.3 -1.0 0.5 -2.8 0.1 1.2 -5.0 2007 -1.0 -1.2 0.7 -0.6 0.0 -2.8 1.1 8.7 -0.5 -0.6 0.3 -2.7 -1.5 1.9 -0.1 -2.4 17.7 3.6 2.1 -5.0 -1.9 5.4 -1.6 -1.0 -2.6 -7.3 0.0 12.2 21.6 0.7 -1.2 -5.0 1.6 4.0 -0.4 0.6 -1.4 7.7 -2.5 -1.3 -3.2 -0.2 3.0 0.5 -0.1 -2.3 -5.7 2008 -3.0 -3.2 -0.1 -0.4 -0.1 -2.0 1.4 5.0 -2.4 -2.0 0.1 -3.3 -2.7 -4.1 -3.7 -6.7 19.1 2.2 2.8 -3.7 -3.7 4.1 -1.8 -1.4 -5.7 -6.8 -2.1 32.5 21.1 -0.4 -2.7 -7.0 1.7 0.4 -1.9 -0.4 -3.4 0.1 -6.0 -0.1 -4.8 -0.9 1.5 -2.0 -0.8 -1.1 -4.6 2009 -9.6 -10.2 -3.0 -2.6 -2.3 -3.3 -0.6 -4.6 -2.3 -6.2 -3.1 -7.5 -5.4 -11.1 9.8 -11.2 10.5 -0.7 -5.6 -4.5 -7.3 -6.0 -5.5 -2.1 -8.5 -6.9 -5.2 -6.1 -12.4 -5.0 -4.7 -10.8 -2.2 -3.5 -3.4 -2.2 -4.6 1.6 -6.4 -1.6 -7.0 -3.7 12.7 -4.8 -3.4 -4.4 -7.0 2010 -8.5 -9.0 -2.1 -2.1 -2.8 -2.5 0.2 -0.3 -2.6 -6.3 -4.3 -7.1 -4.6 -9.3 8.9 -10.0 10.5 -0.0 -3.4 -4.2 -7.9 -4.0 -3.6 -1.1 -6.4 -8.4 -3.7 6.5 2.7 -4.8 -4.1 -9.4 -4.3 -4.3 -2.9 -2.5 -3.2 4.3 -4.7 -0.7 -5.6 -3.5 -1.7 -2.1 -2.7 -1.3 -5.5 2011f -8.0 -8.6 -1.9 -2.1 -2.5 -2.4 -1.4 1.1 -1.6 -4.5 -1.7 -5.8 -4.2 -6.4 7.4 -7.9 12.5 0.7 -1.2 1.0 -5.6 0.3 -1.5 -3.1 -4.5 -9.7 -3.0 9.6 10.0 -4.8 -4.1 -9.9 -3.6 -3.0 -2.8 -2.0 -3.5 1.4 -5.2 -1.9 -4.4 -2.4 0.4 -2.7 -2.2 -2.0 -3.9 2012f -6.8 -7.3 -1.7 -2.0 -2.1 -2.4 -1.5 0.5 -1.5 -4.0 -1.4 -5.6 -3.7 -5.8 6.1 -6.1 13.5 1.1 -2.3 -3.5 -4.5 -1.5 -2.5 -3.0 -3.2 -10.2 -3.7 5.3 8.4 -4.2 -3.3 -8.3 -1.5 -2.0 -2.3 -1.7 -2.9 3.7 -4.4 -1.7 -4.6 -2.2 0.6 -2.9 -0.6 -2.5 -3.8

Note: * = Fiscal year forecasts. Global and regional aggregates are calculated using the World Banks' 2004 PPP weights Source: HSBC

33


abc

Current accountCurrent account % GDP North America US Canada Latin America Mexico Brazil Argentina Chile Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia UAE South Africa Asia-Pacific Japan Australia New Zealand Asia ex Japan China Asia ex Japan & China Hong Kong India** Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam 2003 -4.2 -4.7 1.2 0.9 -1.0 0.7 6.3 -1.1 0.6 0.3 1.9 0.8 -1.3 -3.5 1.7 -1.6 12.3 6.9 13.3 2.5 -6.2 -8.7 -2.1 8.3 -2.8 5.8 -5.8 2.4 1.2 5.5 8.6 -1.3 2.9 3.2 -5.3 -4.0 3.3 2.8 3.7 9.2 1.5 3.4 12.8 0.8 22.7 1.2 9.8 5.6 -4.9 2004 -4.7 -5.3 2.3 1.1 -0.7 1.8 2.3 2.2 0.9 0.8 4.7 0.5 -0.9 -5.3 1.4 -2.1 12.7 6.5 13.4 3.8 -5.2 -8.3 -3.9 10.0 -3.7 10.5 -8.4 4.3 2.2 15.4 10.0 -3.0 2.7 3.7 -6.1 -5.7 2.8 3.6 2.1 8.9 0.1 0.6 12.1 1.0 17.0 2.2 5.8 1.7 -3.5 2005 -5.3 -5.9 1.9 1.1 -0.6 1.6 3.1 1.2 0.4 0.1 5.1 -0.5 -1.7 -7.4 1.3 -2.6 16.3 6.8 14.1 5.2 -1.3 -7.2 -1.2 11.1 -4.6 2.9 -8.7 3.3 3.2 28.8 17.6 -3.5 3.9 3.6 -5.8 -7.9 4.3 7.1 1.5 12.4 -1.2 0.1 15.0 1.9 21.1 4.1 4.8 -4.3 -1.1 2006 -5.4 -6.0 1.4 1.3 -0.5 1.3 3.8 4.9 0.1 -0.1 6.3 -0.6 -2.6 -9.0 1.1 -3.4 17.2 8.4 14.9 4.0 -2.4 -7.2 -2.7 9.5 -6.1 1.0 -10.4 1.6 5.1 27.7 20.6 -5.3 5.2 3.9 -5.4 -8.2 5.9 9.3 2.5 11.4 -1.0 3.0 16.7 4.3 24.8 2.1 7.0 1.1 -0.3 2007 -4.6 -5.1 0.8 0.5 -0.9 0.1 2.8 4.5 0.3 0.1 7.4 -1.0 -2.4 -10.0 0.9 -2.6 14.1 9.2 8.9 1.5 -3.2 -6.5 -4.7 5.9 -5.9 -3.6 -13.5 1.7 2.9 24.2 9.5 -7.0 6.0 4.8 -6.3 -8.2 6.8 10.6 2.8 10.8 -0.7 2.4 15.9 4.6 27.3 1.5 8.9 6.6 -9.8 2008 -4.3 -4.7 0.3 -1.0 -1.5 -1.7 2.2 -1.9 -0.9 -1.6 6.3 -1.8 -2.9 -9.6 1.2 -1.6 17.7 8.8 2.3 1.5 -0.6 -7.1 -4.8 6.1 -5.7 -7.2 -11.6 0.5 0.7 27.7 8.8 -7.1 4.5 3.2 -4.6 -8.8 5.2 9.4 0.9 10.3 -2.5 0.0 17.7 2.1 14.6 2.3 6.9 0.8 -11.9 2009 -2.7 -2.7 -3.0 -0.3 -0.7 -1.5 3.6 1.6 0.1 -0.3 5.6 -1.5 -2.0 -5.2 1.4 -1.7 11.8 7.1 11.4 0.7 -1.0 0.4 -2.2 4.0 -2.3 -1.5 -4.2 -2.4 3.6 6.0 3.4 -4.1 3.6 2.8 -4.3 -3.1 4.1 5.7 2.4 7.5 -1.9 2.0 16.5 5.6 19.0 0.4 11.4 8.3 -8.0 2010 -3.2 -3.2 -3.1 -1.0 -0.5 -2.3 1.0 1.9 -0.2 -0.4 5.7 -1.8 -3.5 -4.6 0.8 -3.2 12.4 6.6 15.6 1.2 -2.1 2.4 -3.4 4.8 -6.5 -2.1 -4.2 -2.1 3.1 15.6 5.8 -2.8 2.8 3.6 -2.7 -4.1 2.9 4.2 1.4 5.6 -3.0 0.8 11.5 4.2 22.2 3.3 9.3 4.7 -8.3 2011f -3.0 -3.1 -2.4 -1.3 -0.8 -2.4 0.0 0.2 -0.2 -0.7 5.0 -2.4 -4.0 -4.1 1.3 -2.1 12.5 6.7 13.0 1.1 -2.5 0.6 -4.4 4.6 -9.6 -2.5 -4.4 -0.9 0.0 23.6 9.9 -3.9 2.5 2.7 -2.5 -2.5 2.7 3.7 1.6 6.2 -2.3 0.5 11.9 4.3 19.2 2.1 9.8 4.3 -7.6 2012f -2.7 -2.8 -1.5 -1.6 -0.9 -2.7 -0.7 -0.5 0.4 0.1 4.8 -2.1 -1.0 -3.7 1.4 -1.6 12.0 5.1 12.6 0.0 -1.9 0.3 -4.6 3.1 -6.3 -8.3 -5.8 -1.8 0.5 16.0 7.6 -4.0 2.0 2.0 -2.9 -1.6 2.2 2.6 1.7 9.8 -2.6 0.6 11.8 3.9 22.4 1.5 11.4 3.2 -6.7

Note: * = based upon Egyptian financial year (July-June); ** = based upon Indian fiscal year (April-March). Global and regional aggregates are calculated using the World Banks' 2004 PPP weights Source: HSBC

34


abc

Current account USDbn North America US Canada Latin America Mexico Brazil Argentina Chile Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia UAE South Africa Asia-Pacific Japan Australia New Zealand Asia ex Japan China Asia ex Japan & China Hong Kong India** Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam 2003 -506.4 -521.0 14.7 4.3 -7.2 4.2 8.1 -0.8 88.1 24.2 47.7 14.5 -19.9 -32.0 63.9 -30.2 27.8 22.1 44.3 38.5 -5.8 -6.8 -4.6 35.8 0.0 2.9 -3.5 1.9 1.4 11.8 7.5 -2.2 262.2 136.3 -28.3 -3.1 157.3 45.9 111.4 14.7 8.8 8.1 13.3 0.7 21.8 7.5 30.5 8.0 -1.9 2004 -600.2 -630.0 29.8 12.0 -5.2 11.7 3.4 2.1 137.2 76.7 129.7 10.7 -15.9 -55.7 60.4 -45.2 33.3 23.0 49.2 69.9 -5.7 -8.8 -10.0 59.9 -14.4 6.8 -6.4 3.4 2.7 38.6 10.5 -6.7 284.4 172.1 -39.5 -5.6 157.4 68.7 88.7 14.7 0.8 1.6 15.1 0.9 19.2 15.6 19.7 2.8 -1.6 2005 -722.1 -748.0 25.9 16.0 -5.1 14.0 5.6 1.4 78.1 13.2 138.2 -10.4 -28.6 -81.8 64.8 -58.9 48.4 23.9 51.4 156.3 -1.6 -8.3 -3.7 84.3 -22.1 2.5 -8.6 2.9 4.3 90.8 24.4 -8.5 379.0 165.8 -41.6 -8.8 263.7 160.8 102.9 22.1 -10.3 0.3 20.7 2.0 26.4 32.3 17.6 -7.6 -0.6 2006 -777.9 -798.4 20.5 24.3 -4.5 13.6 8.0 7.2 44.6 -16.0 183.9 -12.9 -49.0 -112.0 60.6 -83.1 58.3 27.2 58.3 159.3 -3.4 -8.6 -9.4 94.3 -32.2 1.1 -12.8 1.8 7.4 98.9 36.0 -13.7 510.7 170.4 -41.6 -8.7 390.6 253.3 137.3 21.7 -9.3 10.9 25.4 5.3 36.2 18.6 26.3 2.3 -0.2 2007 -711.9 -724.7 12.8 7.5 -8.9 1.6 7.4 7.5 63.0 10.3 252.1 -26.2 -50.9 -146.5 52.7 -73.2 56.1 30.6 39.2 75.3 -5.6 -9.6 -20.3 77.2 -38.3 -5.2 -23.1 2.3 4.9 93.3 19.6 -20.0 681.1 210.9 -58.6 -10.8 539.6 371.8 167.8 22.4 -8.1 10.5 29.2 7.1 48.6 14.1 35.2 15.7 -7

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